Milk Bucket

Milk is an item obtained from cows by right-clicking on their udders with an empty bucket. It can be used as an ingredient in cake, or can be used as food on its own. Milk buckets can be emptied by right-clicking on a block, which will pour out the milk. However, the contents will be lost, as milk cannot be placed like water or lava to form liquid springs.

Milking Tips
Cows can be easily milked if the player stands one level below them. They can be milked an infinite number of times and will always produce milk, but the difficulty of milking free-roaming cows (especially in multiplayer due to latency) perpetuates the myths that milk production is random, that cows can be milked a definite number of times, or that certain cows won't produce milk.

A simple, reliable way to milk a cow is to place it into a milking stall, consisting of a 1 block wide water channel that leads to a fence, and a roof to prevent the cow from escaping vertically. A cow can either be pushed into the stream or the player can wait for one to be caught in the water current and be pressed against the fence. Standing 1 block away from the fence on the opposite side of the cow will enable the player to easily milk the cow.

Another simple way to milk cows is to make them go into water. While in water, the cow will not flee as you milk it.

Use
Right clicking with a full bucket of milk will start the eating animation. It doesn't fill up the hunger bar, but will immediately cancel the effect of poison and other potion effects.

History
Milk was first introduced in Alpha 1.0.8, but had no purpose until Beta 1.2 when it was incorporated into the crafting recipe for cake. It wasn't edible until beta version 1.8.0.

According to a tweet by Jeb on September 30th 2011, in Beta 1.9 Pre-release 2 Milk is a cure for all potion effects.

Trivia

 * From Beta 1.2_01 to 1.4, Squid could be milked by right-clicking on their mouth if part of their body if it was exposed to air or if they were not touching another block. An easy way to accomplish this was to pull a squid with a fishing rod away from other blocks and then milk it. Squid milking was removed in a subsequent update.