Diamond Ore

Diamond ore is a mineral block generally considered to be one of the most valuable and elusive blocks in the game (although not as rare as emerald ore). When mined with an iron or diamond pickaxe, it drops a diamond. The diamond ore block itself can be obtained by mining the ore with an iron or diamond pickaxe enchanted with Silk Touch.

Uses
Diamonds can be used to make shovels, pickaxes (diamond pickaxes can be used to mine obsidian), axes, swords, hoes, and armor of the highest quality. It is also a prerequisite ingredient in Jukeboxes, solid diamond blocks, and enchantment tables. If you want to mine and correctly gather the diamond, use either an iron or diamond pickaxe.

Prospecting
Diamond ore can be found in veins of 1-10 blocks (sometimes even more if multiple veins happen to spawn together, and down to 1 if the block that was supposed to be diamond ore is occupied by dungeon, ravine, stronghold, lake, lava pool, other ores, patches of dirt and gravel etc.) Diamond only appears in the bottom 16 layers of the map.
 * Diamond ore occurs in roughly 0.0846% of stone from levels 2-15.
 * There is an average of 3.097 diamond ore per chunk.
 * It is a good idea to dig around a diamond block before mining it to ensure that the gem won't fall into a cave, lava, etc. (This is especially necessary if you happened to stumble upon a lava lake nearby)
 * It is recommended to use a pickaxe with the fortune enchantment when mining diamond. This can yield up to 4 diamonds per ore block (with Fortune III).
 * There is no evidence that lava pools enhance chances of finding diamond. They merely spawn at about the same altitude. If you see lava, it doesn't necessarily mean there's diamond nearby, it only means you're in the bottom 16 layers of the world, the altitude where diamond also spawns. Indeed, lava pools may replace nearby ore, leaving you with "short" veins.

Mining strategies
There are extensive discussions about the best ways to find diamonds. Good places to start would be the "Diamonds Tutorial", and the tutorial on branch mining. One basic strategy for diamond mining is to build branch mines on levels 6 and 10, thus covering the 8 layers with the highest concentration.

This is a video tutorial about this strategies

A real case example of diamond ore distribution


For this example, a new world was created in Minecraft 1.2. The data from the save file was then extracted for 416,342 chunks, and the number of diamond ore blocks occurring at each layer was then counted. Although diamond starts to appear from level 15 downwards, it is pointless to mine on that level; you should instead focus on the layers with the highest concentration of diamond, between levels 5-12. Because of the lava lakes there is slightly less diamond ore in the middle of that range (around layer 9, but 11 is much safer).

Trivia

 * Diamond ore can be smelted into a diamond gem, although the only way to obtain the ore is with the silk touch enchantment. Mining it normally produces a diamond rather than the intact ore. However, it could be smelted even before the then-unobtainable Redstone and Lapis Lazuli ores could be smelted.
 * In some vein formations, ores connect diagonally. Therefore it is recommended to mine around diamond ore. This also permits checking for lava.
 * Diamond ore, along with other ore, appear in the background on the achievement page.
 * Diamond ore is considered to be one of the rarest natural blocks in the game, second to Emerald Ore. However, during Beta 1.6, Clay was actually rarer due to a bug. Likewise, in 1.0.0, End Portal Frames are purposefully rarer, but finding them is more controllable.
 * Diamond ore always occurs in groups of two or more, unless some of it was replaced with a cave, stronghold, dirt lode, or an abandoned mineshaft.
 * In Minecraft 1.3, mining diamond ore, along with other ores, gives you experience orbs, allowing for a different way to get enchantments. One stack of diamond ore will give roughly 18 levels.
 * In reality, diamond is compressed coal. This fact means that if you are mining coal ore, then there is a chance that you will find diamond. (But theres a better chance you'll find iron instead)