The official currency of Mexico is the Mexican Peso ($) or MXN.
You can take up to US$10,000 with you to Mexico, if you take more (in cash, cheques or money orders) you will have to declare it with customs on arrival.
US Dollars are accepted in some popular resorts, but you will be penalised with a poor exchange rate.
You can change your Pounds for Mexican pesos in a casa de cambio (Exchange Bureau), banks and hotels but the rates will be less attractive than securing your Mexican pesos before your travels.
There are many ATMs in popular parts of Mexico, which some travellers prefer as it limits the amount of cash that is needed to be carried.