Squid

The Squid is a new passive mob, despite it's giant teeth. It was added in the Minecraft beta 1.2 update. Squid drop ink sacks when killed and can be found in water. They spawn on any difficulty and do not attack, similar to the Animals found on the Mainland.

Behavior
Squid swim around in fairly deep water, sometimes in groups. Listen for a sound that sounds similar to dirt/sand breaking. They often swim fairly deep, and are difficult to see due to their dark complexion. When they move about, their tentacles open and close. This is the easiest thing to watch for in the deeper areas when squid hunting. Here is the dirt/sand sound they make. 

Drops

 * 1-3 ink sacks

The Squid in game.