Clay

Clay is a block that can be found abundantly in lush caves, less commonly in shallow surface water or created from mud using pointed dripstone. It can be smelted into terracotta or broken into clay balls which are smeltable into bricks.

Breaking
Clay blocks can be mined with any item, but shovels are quickest. Destroying a clay block yields 4 clay balls. If broken with a tool enchanted with Silk Touch, it drops itself instead. Destroying a clay block with a tool enchanted with Fortune does not increase the amount of clay dropped.

Natural generation
Clay is most commonly found underwater in swamps, beaches, oceans, and at the bottoms of rivers and lakes in shallow, crystal-shaped disks, disregarding adjacency to other types of blocks.

Clay generates in mason houses in plains, savanna, and desert villages, and under fisher cottages in taiga villages.

Clay generates in large quantities on the floors of ponds in lush caves.

Clay can also generate in lush caves in the form of blobs. Clay attempts to generate 46 times per chunk in blobs of size 0-160, at any height. Clay can replace stone, diorite, andesite, granite, deepslate, and tuff.

Villager gifts
$$, when the player has the Hero of the Village status effect, a mason villager might throw that player a clay block as a gift.

Post-generation
If mud is placed above a block with a pointed dripstone underneath, it will eventually turn into clay.

Note block
Clay can be placed under note blocks to produce flute sounds.

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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 terracotta, bricks, and flower pots.