Mushroom

Mushrooms are a type of fungi in minecraft. Mushrooms function as a decorative item in Creative Mode, a food/hazard in Survival Test, and a staple food item in Alpha.

Mushrooms do not grow in sunlight. Instead, they grow in places with little natural light, such as cave entrances, darker areas of an Indev "Forest" map, or in the shadow of other floating continents in the "Floating" map type. Mushrooms also grow in The Nether's extremely low light conditions. In rare instances while playing Infdev, mushrooms are sometimes generated growing under trees. Brown mushrooms may be generated in the open when exploring during night, at least in the latest Alpha version. Once the sun rises they are destroyed, leaving a mushroom the player can pick up. On the flip side, there have been several bug reports of mushrooms growing on top of trees in mid-daylight without being destroyed. Keep in mind that this is very rare in most cases.

It is not known whether mushrooms can be grown, or whether pigs eat mushrooms.

As of the 1.2 update it seems that mushrooms are now more common place. This is probably because of the biomes which were added in 1.2 for the Halloween update.

Brown Mushrooms
In Survival Test, Brown mushrooms heal 2 and 1/2 Hearts. However, from Indev onwards, a Brown mushroom is used along with a Spotted Red mushroom (and a bowl) to create Mushroom Stew which heals 5 hearts. Brown mushrooms are somewhat rare in all survival-based game modes.

A brown mushroom emits 1 light, just enough to make itself visible in pitch darkness. This may not be intended.

Spotted Red Mushrooms
In Survival Test Red mushrooms hurt the player for 2 and 1/2 hearts. From Indev onwards, Spotted Red Mushrooms are used along with Brown Mushrooms and a bowl at a workbench to create Mushroom Stew, which heals 5 hearts. Red mushrooms are also somewhat rare in all survival-based game modes. In Alpha when you Teleport to The Nether, these are much more abundant in quantity.