Mushroom

Mushrooms can grow in dark caves and shady areas. They are more readily available in swamp and mushroom biomes and the Nether due to its low light conditions. Red mushrooms are generally rarer than their brown counterparts.

Mushrooms can be collected without any specialized tools (by hitting) and planted on the ground in light levels below 13 (except in the cases of Mycelium blocks, where mushrooms will remain planted even under full sun).

Mushrooms grow only at light level 12 and below, and grow more quickly at light level 5 and lower, this growth rate is determined by the light level of the original - or "seed" - mushroom when growing from a lower light level into a higher light level. Brown and Red mushrooms grow at the same speed.

Planted mushrooms will grow into Huge Mushrooms when bone meal is used on them, and will pop out of the ground if the light level goes above 12 and a square next to them updates, water flows over them, or when pushed by a piston.

The individual blocks of Huge Mushrooms will drop individual small mushrooms when broken by the player. The blocks cannot be set on fire and are unaffected by lava.

Mooshrooms are a unique mob that serve as a source for red mushrooms (when sheared) and Mushroom Stew (when "milked" by the player while holding a bowl).

Pre-Beta
In Creative Mode, mushrooms were a decorative item, having no crafting use and remaining in the ground when planted. In Classic, mushrooms could be placed on any block except another mushroom, and would remain planted when the block below them was removed. During Indev, mushrooms were generated in rare instances under trees or in the shadows of other floating continents in the "Floating" map type. In Survival Test, Pigs were able to eat mushrooms. Brown mushrooms healed and the consumption of red mushrooms caused  damage to the player's health. From Indev onwards, red and brown mushrooms could not be eaten on their own, but could be crafted together with a bowl to yield Mushroom Stew.

With the addition of biomes and the dimly-lit Nether in Alpha 1.2.0, mushrooms became a more common sight.

Beta
Beta 1.9 Pre-release 1 revealed the addition of the Mushroom Biome, an area composed of Mycelium blocks and populated by Huge Mushrooms and Mooshrooms, strange red cows with red mushrooms growing on their backs. Beta 1.9 Pre-release 2 added a new crafting recipe involving brown mushrooms. Each one could be crafted with a unit of Sugar and a Spider Eye to produce a Fermented Spider Eye.

Trivia

 * Red mushrooms bear a strong resemblance to Amanita muscaria (Fly Agaric) mushrooms. Consuming Amanita muscaria will cause delirium and hallucinogenic effects and death if their toxicity has not been reduced by parboiling. Similarly, Minecraft Red Mushroom caused damage to the player in the Survival Test.
 * Brown mushrooms are more common than red mushrooms in swamps, and this is balanced by mushroom biomes having mooshrooms, making red mushrooms more common there.
 * Using Bonemeal on a Mushroom (red) makes a large mushroom, which can then be hollowed out for a quick shelter.
 * Destroying a giant mushroom usually yields many small mushrooms.
 * Brown Mushrooms have a light level of 1. Red Mushrooms do not share this property.
 * Giant Brown mushrooms grown 7 blocks apart will almost always end up as a large, seamless platform. These can be used to build railway overland fairly quickly.
 * It is possible for mushrooms to be generated on glowstone, even though they cannot be planted or grow there. They will uproot as soon as a adjacent block updates.