Clay

Clay is a block that can be found below water, around or under sand. Clay is commonly found at the bottoms of rivers and lakes in shallow, circular patches, disregarding adjacency to other types of blocks.

It can be mined with any type of tool, but shovels are the optimal choice. Destroying clay blocks will yield 4 clay balls each, which can be crafted back into a clay block or smelted into bricks. Clay blocks can be smelted into hardened clay which can then be crafted into stained clay with different colored dyes.

If you are having trouble seeing if a block is clay or stone, check for the characteristic lines of stone. Clay is usually a lighter color than stone and the texture is not linear. Clay sounds like dirt and gravel when stepped on or mined.

Trivia

 * In real life, clay can actually be reddish brown, not just gray, and can be often found under the surface and away from sand. This color is reflected in the appearance of hardened clay, bricks, and flower pots.
 * If inventory space is tight, clay balls can be formed back into clay blocks using the 2x2 inventory crafting grid. As blocks, clay can take up to 4 times less space, but in order to revert the clay blocks back into balls for smelting into bricks the clay blocks must be placed and destroyed again.
 * Clay blocks can be picked up using an enchanted tool with Silk Touch.
 * Very rarely, a cactus can be found spawned on a clay block. Technically, however, the clay block was spawned after, and therefore underneath, the cactus.
 * One clay block turns into one brick block: 1 clay block becomes 4 clay balls which smelt to 4 bricks, which can be crafted into a brick block. None of these requires a crafting table. (Though a crafting table is required to make the furnace.)
 * Clay is abundant in swamp biomes.
 * There are a total of 17 colors of hardened clay, each for the different dyes used to make stained clay, plus the color of unstained hardened clay. If counted, the regular clay block brings the total to 18.
 * The clay texture is a light-blue/gray recolor of the sand texture.