Sponge

Sponge is a block notable in Classic and Indev for being able to erase water within a 5×5×5 area.

Obtaining
The sponge currently only obtainable via Creative mode or inventory editing. The following will be added in 1.8:

From Water Temples
They can be found in massive amounts in a room in the Water Temple that will be added in 1.8.

From Elder Guardians
The Elder Guardian, a boss mob that will be added in the upcoming 1.8 release, will drop sponge upon death. It will also respawn, making sponge renewable.

Smelting
This recipe will be added in the upcoming 1.8 release.

Future (1.8)
On June 8 2014, Jeb stated that he is re-adding sponges to survival for 1.8. They still clear water as they did before, though their mechanics are more complex than simply clearing a 5x5x5 area. They appear to remove source blocks only, not flowing water, in a 5x5 area, but if there is a barrier of some sort between the water the sponge is in and another pool of water (for example a solid block), the water in the other pool will not be absorbed. It will turn darker when it has absorbed water. The new sponges have undergone a slight retexture. It seems that the Sponge Block will be available in Survival Mode.