Nancy Reagan played tourist today in this picturesque Alsatian city while her husband went off to dine with leaders of the Council of Europe in an 18th-century chateau. They rejoined each other later when the president addressed the European Parliament.

A V-E Day holiday crowd of several thousand lined the quai along the River Ill as Mrs. Reagan took the 15-minute boat ride through the medieval part of the city.

At one point in the tour, Marie Odile Pflimlin, wife of the Council of Europe president, interrupted Mrs. Reagan's U.S. consulate escort, Gilbert Hadey, to say: "You should tell her the truth."

"The truth," it soon became apparent, was that an old quarter of the city, where they were going for lunch, had been named for "la petite franc,aise," which in the vernacular of the 16th century meant venereal disease.

"Soldiers coming from Italy brought la petite franc,aise and since there was a small hospital in the quarter where they were treated, the people of Strasbourg began calling it 'Petite France,' " said Madeleine Klein, guide-lecturer for the city of Strasbourg.

Though her mother obviously had heard the story, Antoinette Pflimlin said it was new to her. "I grew up here and I never heard that before," she said.

A source said Americans involved in preparations for Mrs. Reagan's visit had been at odds over whether to tell her the story. Mrs. Reagan listened but showed no reaction.

Disembarking from the boat at Petite France, the first lady was greeted by Alsatian folk dancers wearing colorful peasant costumes.

Mrs. Reagan wore a bright red Adolfo suit with full-length coat and carried a matching red handbag. She watched the dancers briefly then disappeared with her group into La Maison des Tanneurs, a 16th-century half-timbered house that is now a restaurant. In an upstairs dining room, she looked out of the window for quite a while as three dances were performed especially for her. She seemed reluctant when an aide finally took her away from the window to eat her pa te' de foie gras and asparagus lunch.

Competition reportedly had been keen for invitations to the luncheon. Those who were included in the group of a dozen or so guests accompanying her included Marguerite Rudloff, wife of Strasbourg's mayor, Anne-Marie Dumas, wife of the French foreign minister, Marie Helene Galbraith, wife of the U.S. ambassador to France, and Antoinette Pflimlin.