String

String is an item that was added to the game in Indev. String is primarily received by killing Spiders, which drop 0 - 2 units on death, but can also be obtained by destroying Cobwebs. String has a $4/5$ (80%) chance of spawning in a Dungeon chest, where it will appear in stacks of 1 - 4 units. This is not a practical way to find String though, since Spiders can be used to get string more quickly and in larger amounts. In Abandoned Mine Shafts and some room of Strongholds have Cobwebs which can be slashed with a sword or cut with an axe to get string.

String has no special functions and can be only used in Crafting.

Crafting
String is a vital component to two recipes, the Bow and the Fishing Rod. String can also be used to make Wool, but this is rather wasteful as Wool can be obtained from Sheep. It is more economical that you save your string for making more Fishing Rods (which take damage and break) or more Bows (which do not take damage and will last forever, but can be used to make Dispensers).

Trivia

 * For a period in Indev, Mob drops were random. The Mobs at the time had a chance of dropping String, Gunpowder, Feathers, or Flint and Steel. This can be seen with a Sheep dropping String. This was changed in an Indev update on February 19, 2010. Spiders were made to drop only String, and other mobs dropped only their respective items.
 * It is recommended that you do not make one wool block out of four string, since it takes longer and is more dangerous while shearing sheep is much easier.
 * Prior to Beta 1.6.6, nine pieces of string, one in each square of the large crafting grid, were needed to craft one block of wool.

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