I have always varnished once, then painted then varnished again. It's worked out well because if you make a mistake, you can erase it with a rag dampened with thinner.

Always varnish first.  The first coat of varnish will fill in the grain's slight un-eveness.  After ALL the varnish coats COMPLETELY dry, you will have a smooth surface to paint on and, if you are applyting a tape created design, the paint will be stopped at the tape line & not "migrate" under the tape's edge.  ALSO, a coat of varnish atop paint will discolor the paint's finish.

Finally, as Jack said, it you ever want to remove or change the design, the paint will come off (By sanding), without harming the wood.....~BRUCE~

You certainly *can* paint first and then varnish over it, however. I just completed a project where I did this, and the Epifanes people recommended it (I used their wood finish). Because the boat was already thoroughly epoxied, then sanded, epoxied, sanded....repeat....repeat...the surface was very smooth. It's true that the varnish darkened the brighter colors slightly, but the overall effect is pretty awesome. And since I'm certain that I want the art on the boat to last, having the varnish protect the paint job was very important to me.

Thanks Klang. This is a timely question. I'm building a CH18 and because I messed up one of the side panel puzzle joints a little by over sanding, thinking of painting over with a slant design. Sounds like one coat of  varnish, then the paint, then more varnish. I will be using a dark paint, so any yellowing or whatever doesn't matter to me.