How lucky to be able to take 3-4 months off to spend in Central America! First, whichever school you pick I suggest only signing up for a week at a time. You may find once you are there that the school,location, teachers, etc are not to your liking, so I wouldn't commit myself to more than a week at a time at the outset.

Secondly, Antigua is a very popular place for learning Spanish, and gets thousands of students every year. Personally, I think you can still learn a lot there, but it's a matter of personal opinion as to whether it's too touristy or not. It will have more English speakers than other places in Guatemala, so it may not be the immersion experience you are seeking. It's also a popular tourist town whether you are learning Spanish or not, and is a bit more expensive than other places in Guatemala. I'm not as enamored of Antigua as some people, but I think it's a good jumping off point to get acclimated to Guatemala.

If I had 3 months to spend in Guatemala, I would probably study in Antigua for a couple of weeks, then move on to Quetzaltenango (Xela), and then somewhere on Lake Atitlan. San Pedro is a good choice, although I like Panajachel better. Just a matter of personal preference. Actually, with 3-4 months you could take classes in both Mexico and Guatemala. Travel in Cental America is fairly cheap, and it would be awesome to experience both countries.

This is a good site for narrowing down your choices in Guatemala: http://www.guatemala365.com/

Here's a school in Xela that I am considering. Haven't been there, so can't personally recommend it:
http://www.casaxelaju.com/cex/

A few schools in Antigua I looked at:
http://www.donpedrospanishschool.com/
http://www.spanishacademyantiguena.com/
http://www.ixchelschool.com/

Good luck to you!

This question is right up my alley because I study Spanish in immersion programs every summer and often have groups in tow. I'd definitely pick Guatemala and agree with walkabout that Antigua can be a good landing spot but I wouldn't commit to much time there. That's true of any setting - why commit to months if you don't know how good the fit is? Because I get asked for recommendations a lot, I've put my opinions and experiences together in the bit below. Hope you find just what you're looking for!
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You can search for schools by country or city using
http://www.123teachme.com
but take the ratings with a grain of salt. Specific to Guatemala, try
http://www.guatemala365.com
but keep in mind that they haven't added schools for many years so some terrific ones (like the Cooperativa, below) aren't listed.

For bang for your buck, Guatemala leads the list of Spanish schools in CA, followed closely by Honduras. In both countries 1-on-1 instruction is the norm; in other CA countries and México it's hard to find and you pay dearly for it - sometimes 3 or 4 times what you'd pay for the same offerings in Guatemala. I HUGELY prefer 1-on1 instruction because I want my own strengths and needs, learning style, and desire for a break or a change of pace to drive the curriculum and instruction. Even in a small group - 2 to 4 people, that's unlikely to be the case as we're no 2 alike in this challenging language learning process.

In Guatemala Antigua, Xela, and the villages around Lake Atltlán are all popular choices. Antigua has the least effective immersion environment because there are dozens of schools and thousands of tourists at any given time so the infrastructure is largely English speaking. I'm not over fond of Xela; it's chilly at that higher altitude and it's a big (not so attractive imo) city and I'm just not a city person. The surrounding area is interesting, though, and here is a link to information about that area: http://xelapages.com/ . The lake is where I prefer to head.

In Honduras, I think Copán makes an excellent base for study - cute town, lots to do including museums, the ruins, a bird park, a butterfly place, hot springs, caving, and hiking. Although it gets a lot of visitors because of the ruins, they seem to be mainly day trippers or stick to their hotels and surprisingly few locals speak English (a good thing for Spanish acquisition). La Ceiba is a city and HOT so I haven't headed back there; the immersion factor is decent (though it's better in small towns imo because the locals get a kick out of helping you practice) and there are great outdoor activities in the area. The islands (and in general popular beachy places in all countries) make poor immersion environments but have their own appeal.

In any school, ask for what you want; if you're not pleased with your teacher or host family, fix it instead of going on week after week in a situation that doesn't fit your needs. I wouldn't commit to more than a week or 2 until you know the school and town is a good fit for you. Teachers in quality schools are so good at assessing your level and learning style that moving doesn't "cost" as much as you might think. If it feels right - don't move.

If you're interested in university credit for Spanish immersion study or volunteer and cultural learning projects, check out
www.liveandlearninlatinamerica.blogspot.com

Here's a link to my photo collections with blog and travelogue links on the main pages; I'll refer you to collections below.
http://www.flickr.com/photos/staceyholeman/collections

The following are schools I’ve attended and can recommend personally.

Academia Antigüeña is a good school in Antigua, Guatemala - strong teachers, cool activities, interactive host families, though I had 3 add'l students in mine which was common. Prioritizing homestays is really important in Antigua where many schools offer stays that are more like boarding houses than family stays. Several people have complained about staying with Olga, the secretary of the school, so I'd avoid that. Familia de Cesar Sactic is wonderful. Antigua isn't a good immersion environment but it's a good place to start if you haven't traveled in CA much. Guatemala 2009 collection http://www.spanishacademyantiguena.com

Cooperativa is my home away from home - I really love that place. Gorgeous garden setting overlooking Lake Atitlán in Guatemala - young, talented teachers, culturally important activities, interactive families (though a bit more humble lodgings than in the others), and heavy community investment. I have life-long friends there who have helped me start a non profit: http://www.becaproject.org
2007 and 2009 collections for study, 2010 and 2011 for more local photos - I'll be at least visiting there every year and usually studying for a few weeks. http://www.cooperativeschoolsanpedro.edu.gt

Ixbalanque in Copán Ruinas, Honduras is another great school you could consider - beautiful new school building, cute town, great staff and families. I've enjoyed their weekly activities, too, and there's lots to do in the area. 2005 and 2008 collections http://www.ixbalanque.com

Central American Spanish School with bases in La Ceiba and on Utila and Roatán is a good school; in La Ceiba my teacher and host family were really amazing. La Ceiba is HOT and I'm not much of a city person, though. The islands are poor immersion environments as English is widely spoken; lots to do though (I'm a diver). 2006 collection http://www.ca-spanish.com

Instituto Jovel in San Cristobal de las Casas, Chiapas, Mexico - beautiful school, well run, good staff and families. I enjoyed San Cristobal and surrounds but it's MUCH more expensive. 2010 collection http://www.institutojovel.com

If you contact any of them, please tell them hi from Stacey.

Let me know if I can answer more questions!

Another vote for Ixbalanque in Copan. The 1 on 1 instruction is intense but effective. I studied in the morning when it was cooler ( Feb) and went on excursions in the afternoons. I tried a combination of homestay and quaint hotel lodging at Posada del Belssey.

rivet - Glad you had a good experience at Ixbalanque - I've got to get back there someday. La Posada de Belssy is a great budget place, good location. I'm a huge fan of 1-on-1 instruction which is one of the main reasons I keep heading back to Guatemala where - like Honduras - it's the usual way schools set things up. In other CA countries and Mexico classes are the norm. Happy New Year!

I didn't take a Spanish course in Honduras, but I also stayed at La Posada de Belssy. For $16/night I thought it was a good bargain. Also highly recommend the Picame Restaurant just down the hill from the hotel.

While I live in Esteli Nicaragua, I have been in Panajachel Guatemala for the last month. I agree with those expressing concern with the Pana/Atitlan and Antigua areas as being too touristy. While my Spanish is decent and I try to speak it whenever possible, I am regularly spoken to in English by even 10 year old street vendors.

My feeling is Xela (been there) or a place in Nicaragua are better options if immersion is your goal. Or a smaller village on Lake Atitlan. That said, for amazing beauty, and perfect weather, Lake Atitlan can't be beat.