Dispenser

A Dispenser is a special block available since Beta 1.2. When right-clicked, a menu allows you to place items inside it. Each time the block receives power from a redstone circuit, a random item from its inventory drops out.

Unlike chests, when a dispenser is destroyed, the items inside are gone forever. Notch has stated that this is a bug:.

Tutorial
An introductory video tutorial can be found here

Crafting
When placed, the dispenser faces the player (it will dispense items towards where the player is standing).

Dispensing
Most items placed in a dispenser will simply be ejected as items and land 2-4 blocks away if on level ground.

Arrows, eggs, and snowballs that are stored inside the dispenser are instead fired out (as if they were right-clicked in your inventory). Arrows will cause damage (and cannot be picked up, like arrows fired by skeletons); eggs and snowballs break with all the usual effects.

A powered dispenser will also provide power to dispensers placed above, below, and to both sides of it. This allows for easy creation of large walls of dispensers. A 4x4 dispenser wall needs power to all four corners, and two center dispensers to operate all at once.

When a dispenser dispenses an item, it emits a clicking sound and a puff of smoke. If it is empty when activated, it emits a slightly higher-pitched click.

A dispenser will not work if it is placed underwater, unless all sides, but the face are covered with a block.

If a dispenser is placed in a 1x1x1 hole and blocks are cleared infront of one of the blocks adjacent to the dispenser, the fired item will pass through the block if the arrow is to be fired West or South ( North being the direction the clouds head ).

Trivia

 * The Dispenser uses the same texture as the Furnace on all sides except the face, which has a unique texture.