Squid

Squid are the first water mob in Minecraft. They are 8-armed passive mobs introduced in the Beta 1.2 update. Squid are found in water of any depth in any location, and drop ink sacs when killed. They spawn on any difficulty and do not attack, akin to the other passive mobs found on land.

Behavior
When moving about, the squid's tentacles open and close, giving them an appearance of pushing themselves forward. Squid swim around aimlessly, and do not deliberately interact with the player.

When forced onto land, squid become immobile. They take fall damage and burn like any land mob.

Unlike any other mobs, squid are capable of freely swimming up a waterfall.

Drops

 * 0-6 Ink Sacs upon death.
 * Beta 1.2, 1.3, and 1.4 only: Right clicking a squid's mouth with a bucket when the squid isn't touching another block will fill the bucket with milk.

Bugs

 * A squid can end up above water, swimming through the air. (This can be done by removing the water around them with a bucket. It can occur naturally as well, but it is very rare.)
 * Despite not having feet, squid make footstep sounds when swimming across blocks.
 * In SMP, when you log in on a server with major lag, you may see flying squid above the clouds. However, they will disappear later.
 * In multiplayer, when a spawnmob of squids amounts over 99 in one by one square, when hit they will all become undamagable and fly through anything. Even bedrock, lava and stone.

Trivia

 * It is impossible to pull a squid onto land with a fishing rod.
 * Hitting a squid underwater causes them to rise approximately 1/3 to 1/2 a block.
 * Squid cannot be damaged by attacking their tentacles, unlike Ghasts.
 * Squid will spawn in The Nether if the necessary spawning conditions are met, this can be done using inventory hacks but it is possible to occur naturally on rare occasions.
 * Real squid have eight arms and two tentacles, while the Minecraft squid have eight tentacles, making them more akin to an octopus.
 * An easy way to find squid is to stare into a large body of water and rapidly hit the fog distance key (default 'F').
 * In Beta 1.3, another easy way to find squid is to press F3, which displays a number over their head that is clearly visible from above ground.
 * Squid behave like some land mobs and attempt to ride a Minecart. However this is not normally very effective as rails cannot be placed underwater. You can however put it in and drain the water, the squid will not die, and is now transportable.
 * Squids are the first passive mob that spawns at any light level, in water, and without grass.
 * As of Beta 1.3, squid have the ability to move in three dimensions, rather than only along the bottom of the body of water.
 * Squids are the only mob that doesn't have a death animation where it falls to its side.
 * When the world is loaded, all squid are aligned with the tentacles facing east.

Screenshots
Tintenfisch Kałamarnica