We have been attending the Porcupine Mountains Music Festival for several years in Michigan's upper peninsula. It is in Porcupine Mountains State Park, which is one of our favorite destinations for both camping in the teardrop and back country camping. The festival is always the last weekend in August, so weather is usually beautiful. They make it a point not to be just a folk festival, and bring in all types of music.
http://www.porkiesfestival.org/
We also attended the Dunegrass festival in the Traverse City area of Michigan for the first time this summer. It was in early August. Bit more of a hippy crowd, but still a lot of fun. We'll probably be going back again next year.
http://dunegrassmusicfestival.org/