The couple braved the freezing cold weather in San Francisco's Golden Gate Park, where they attended Outside Lands, a music, food, wine, beer and art festival, set up like a wonderland in the wilderness.
Sitting on a blue tarp early Friday evening, Hudgens and Butler chilled out right before watching a set by Canadian electronica duo, MSTRKRFT.
"Vanessa was on her cell phone, while Austin laid down next to her, seeming super relaxed," an onlooker tells PEOPLE.
But once the set began, Hudgens got up immediately and starting singing the words to the songs, while dancing and getting really into the music.
"She seemed to be having the time of her life," the observer says. "You could tell that she's really into music and felt good having her boyfriend by her side."
When the former Disney starlet took little breaks from dancing, she took photos of Butler with an expensive-looking camera, and the two would act flirty.
"She would make cute little faces at him, and he would just stare at her, looking totally in love," the source says, adding that both had flawless skin.
Additionally on hand during the three-day event – where attendees also watched artists including Metallica, Stevie Wonder, Wolfgang Gartner, Washed Out, The M Machine and Santigold – was Neil Patrick Harris, who performed back-to-back variety shows and Tweeted about it.
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