Slime

The Slime is the fifth hostile mob, and was added on July 23, 2010 (Seecret Friday 6! Alpha 1.0.11). They appear as green semi-transparent cubes. Slimes come in four official sizes: huge, big, normal, and small. They are the first mob that can spawn in both light and dark areas. These creatures are only naturally found deep underground in the bottom 16 layers of the map. They usually spawn in large, cavernous spaces or in open mines. This is partially caused by the fact that a large space is needed for them to spawn. Small slimes apparently spawn in the peaceful difficulty.

Attacking a slime will cause it to break into four smaller sized slimes unless a sword is used. Currently, Slimes do not grow larger over time. The small slimes are harmless and can only push the player around.

Slimes of any size will begin to take burn damage upon touching lava and die moments later without splitting into smaller slimes. Slimes cannot swim, therefore they will drown if they are completely submerged in water, and will be unable to jump out. Slimes were known to be able to climb ladders, making them able to get out of caverns by following the player.

Killing a small slime yields 0-2 units of Slimeballs which currently serve no purpose whatsoever.

Notch confirmed in Coequest's livestream that slimes have been returned as of Beta 1.2_01, but are very rare.

Drops
Beta:
 * 0-2 units of Slimeballs (Only the small ones drop Slimeballs)

Trivia

 * In the Coequest livestream, Notch confirmed that slimes are back in the game. However, they are extremely rare. He will make them more common in a future update.
 * By editing the mob's files, it is possible to make slimes much larger, some values creating 50 block high slimes.
 * When slimes were first added, they spawned at a very high rate. This caused Notch to limit slime spawning. However, it appears that he incorrectly calculated slime spawning, leading slimes to spawn only in strange locations. This eventually caused Notch to completely disable natural slime spawning until Beta 1.2_01.
 * Slimeballs can be farmed by punching Slimes to death instead of using a tool like a sword or axe. It gives a 100% chance for the slimes to split into 4 more slimes instead of just dying. This means:1 Big slime = 4 normal slimes = 16 small slimes = 0-32 drops.
 * Slimes can be used to push minecarts uphill.
 * Slimes can be killed by snowballs and eggs.
 * It seems that, very rarely, a slime might spawn in the upper layers of a snow biome.
 * Small slimes are often kept as pets when found, due to the fact that they will follow the player(for they are aggressive) but will not be able to cause any damage in that size.
 * It is rumored that the player can create a slime spawn room by making a 20x20x8 room just above the topmost layer of bedrock, but It is recommended to keep this room lit up, or unwanted mobs will spawn there as well.