Bone Meal

Bone meal is a material made from the bones of killed skeletons. It is a primary color dye as well as a fertilizer.

Dye
Like all dyes, bone meal can be applied directly to sheep to color them white. This is the only direct use of bone meal as a dye since it cannot be used to change colored wool blocks back into white wool at a crafting table. It can also be combined with other dyes to produce new colors:

Fertilizer
When using Bone Meal as fertilizer, there is a chance of failure for saplings and mushrooms. In that case, the procedure must be repeated until it eventually works.
 * Wheat Seeds, Potatoes, Carrots: When applied to planted wheat, potato or carrot, one bone meal is consumed and the crop grows instantly, ready to be harvested.
 * Melon Seeds: When applied to the planted stem, one bone meal is consumed and the stem grows instantly, ready to spawn melons. Keep in mind that melons do not spawn right away.
 * Pumpkin Seeds: When applied to the planted stem, one bone meal is consumed and the stem grows instantly, ready to spawn pumpkins.
 * Saplings: When applied, one bone meal is consumed and the sapling may grow instantly into a tree, provided it has enough space, light, and luck.
 * Grass Blocks: When applied to a grass block, one bone meal is consumed and tall grass, and usually a few flowers, form in a random pattern in a 10x10 area centered on the northwest corner of the grass block (the corner with the lowest X and Z values). This is very useful when you don't have any wheat seeds and can't find any tall grass. You can get the bones from skeleton and get some seeds from tall grass that you have grown from bone meal.
 * Mushrooms: When applied to a mushroom that is planted on dirt, one bone meal is consumed and the mushroom grows instantly into a Huge Mushroom. It is possible to be harmed and knocked back if the huge mushroom grows to occupy the space you are in. While the damage is minimal, use caution when growing Huge Mushrooms with low health or near cliffs.
 * Cocoa Pods: When applied to planted cocoa plants, one bone meal is consumed and the cocoa plant grows instantly, ready to be harvested for Cocoa Beans.
 * This effect does not work on cacti, sugar cane, vines or Nether Wart.

13w04a
As of, bone meal no longer gives instant growth - instead, each use advances one growth stage. Crops now need seven bone meal, saplings need two. It also now gives off green particles when used.

Trivia

 * Bone meal's fertilizing properties make it ideal for growing large quantities of trees or wheat in tight spaces very quickly. A single bone's worth of bone meal can generate enough wheat for one bread or cake. Due to the limitations of 13w04a this is no longer possible.
 * Using bone meal over grass blocks immediately gives you the tall grass, roses and dandelions. It is faster than having to go search for more.
 * When bone meal is used on grass, each new plant has a 90% chance of becoming tall grass. Each plant that is not tall grass has a 1 in 3 chance of becoming a rose, or a 2 in 3 chance of becoming a dandelion.
 * Using bone meal to fertilize, harvest and replant Seeds is a fast way of creating a large number of seeds at the expense of bone meal instead of harvesting tall grass. This method also produces wheat and can be used to replace traditional farming methods.
 * In Beta SMP version 1.3, there was a bug with Bone Meal so that it would have a 100% chance of succeeding on the first try when used on trees and crops.
 * One bone can be crafted to 3 bone meal, which means on a successful drop, you can get 3 or 6 units of bone meal from a single skeleton.
 * There is a crafting recipe that uses white wool and bone meal. It is useless, however, because it outputs white wool, thus wasting bone meal.
 * Grass planted with bone meal in an area already populated with grass can force grass to appear up to 6 blocks away from where you originally used it. The chance of grass growing decreases once you go farther away from the block you used bonemeal on becoming very small at 6 blocks distance. The same can be done with flowers.
 * You can use bonemeal on the side of a grassblock and on a grassblock that already has something on it.