Almost everything in Provence is a day trip from somewhere else, so the real choice is between a walkable town on the railway and waking up inside the view.
Avignon intramuros — inside the walls
The practical base: trains on the doorstep, the Palais des Papes and the free Petit Palais on foot, and dinner within the ramparts without driving. Rooms are scarce and dear for the whole of July, and a good share of the restaurants shut in February.
L'Isle-sur-la-Sorgue — market town on the line
Still on the rail network but half an hour from the Luberon villages by car, with market mornings on Thursday and Sunday and the antiques quarter at weekends. Cheaper than staying in the villages and much easier to escape than Avignon in festival month.
A Luberon village — Bonnieux, Roussillon, Ménerbes
You wake up above the valley rather than driving to it, which is the entire argument for paying more. Against it: a car is unavoidable, there is usually one bar on the square, and village kitchens stop serving early and close for much of the winter.
Île de la Barthelasse, and booking July months out
The island in the Rhône facing the Pont d'Avignon is where the cheap Avignon beds are — a campsite and hostel rooms, with the old town across the river. Whatever you pick, book it far ahead for July: the festival fills rooms across the Vaucluse, not just in Avignon.