Squid

Squid are 8-armed creatures that are always passive towards the player, akin to the other passive mobs found on land. They can be found in water of any depth in any biome and spawn on any difficulty.

Squid are the first passive water mob to appear in Minecraft.

Uses
When killed, each squid will drop 0 - 3 Ink Sacs that can be used to dye wool. The ink sac, like a unit of dye, can be applied directly to sheep before shearing to make black Wool or mixed with varying proportions of Bone Meal beforehand to yield light gray and gray dyes (that can also be used on sheep before shearing).

Alternatively, ink sacs and the gray dyes can be crafted with a wool block for a single piece of black, gray, or light gray wool.

Behavior
When moving about, the squid's tentacles open and close, giving them an appearance of pushing themselves forward. Squid will hover in place and wander around one layer aimlessly and do not deliberately interact with the player, even if attacked.

Squid become immobile when beached on the land. They can take fall damage and burn like any land mob, but they cannot drown, being aquatic creatures.

Squid behave like other mobs and can de-spawn.

History
Squid were introduced in the Beta 1.2 update. Back then, using a bucket on a squid when it was not touching another block would cause the bucket to fill with milk (this was removed in 1.4).

As of Beta 1.3, squid were given the ability to move in three dimensions, rather than only along the bottom of the body of water. An easy way to find them was to press F3, which displayed a number over their head clearly visible from above ground.

As of Beta 1.5, squid are incapable of swimming upward. When they do manage to swim upward, they drift down with a zero net gain in altitude, resulting in a jittery animation.

Bugs

 * A squid can end up above water, swimming through the air. (This can be done by removing the water around them with a bucket. It can occur naturally as well, but it is very rare.)
 * Despite not having feet, squid make footstep sounds when swimming across blocks.
 * In SMP, when you log in on a server with a large amount of lag, you may see flying squid above the clouds. However, they will disappear later.
 * In multiplayer, when a spawnmob of squids amounts over 99 in one by one square, when hit they will all become undamagable and fly through anything. Even bedrock, lava and stone.

Trivia

 * Hitting a squid underwater causes them to rise approximately 1/3 to 1/2 a block.
 * Squid cannot be damaged by attacking their tentacles (unlike Ghasts).
 * Squid cannot spawn in the Nether without the aid of inventory hacks, as there is no water in the Nether.
 * Real squid have eight arms and two tentacles, while Minecraft squid just have eight arms, making them more akin to octopi. This was probably caused by squid and octopi having the same name in Swedish (Bläckfisk) which may have confused Notch.
 * An easy way to find squid is to stare into a large body of water and rapidly hit the fog distance key (default 'F').
 * Squid behave like some land mobs and attempt to ride a Minecart. However this is not normally very useful as rails cannot be placed underwater.
 * You can put it in and drain the water, therefore the squid will not die, and is now transportable.
 * Squid are the first passive mob that spawns at any light level, in water, and without grass.
 * Squid are the only mob that doesn't have a death animation when it falls to its side.
 * When the world is loaded, all squid are aligned with the tentacles facing east.
 * It is possible to punch a squid onto land.
 * If squid are hacked into a monster spawner, they can spawn on land and will not catch fire.
 * It is possible for squid to spawn in underground lakes or waterfalls due to their ability to spawn in any light level and in any depth of water, source block or not.