Squid

Squid are the first water mobs in Minecraft. They are 8-armed passive mobs introduced in the Beta 1.2 update. Squid are found in water of any depth in any location, and drop ink sacs when killed. They spawn on any difficulty and do not attack, akin to the other passive mobs found on land.

Behavior
When moving about, the squid's arms open and close making it seem like they are pushing themselves forward. Squid swim around aimlessly. They are unable to swim upwards so they generally sink to the bottom of the water moments after they spawn.

When forced onto land, squid become immobile. They take fall damage and burn like any land mob.

Drops

 * 0-5 ink sacs
 * Beta 1.2 only: Right clicking a squid's mouth with a bucket when the squid isn't touching another block will fill the bucket with milk

Trivia

 * It is impossible to pull a squid onto land with a fishing rod.
 * Hitting a squid underwater causes them to rise approximately 1/3 to 1/2 a block.
 * Due to a bug in beta 1.2, squid can end up above water, swimming through the air (This can be done by removing the water around them with a bucket. However it occurs naturally as well).
 * Squid cannot be damaged by attacking their tentacles, unlike Ghasts.
 * Squid will spawn in The Nether if the necessary spawning conditions are met, this can be done using inventory hacks but it is possible to occur naturally on rare occasions
 * Real squid have eight arms and two tentacles, while these have eight tentacles, making them more akin to an octopus.
 * Despite not having feet, squid make footstep sounds when swimming across blocks.
 * In Beta 1.2 squid can be milked in a similar manner to cows by right-clicking them with an empty bucket, shown here. However, this is very hard to accomplish and there is dispute about whether certain other conditions need to be met. But due to a recent update (Beta 1.3) squids can no longer be milked.
 * An easy way to find squid is to stare into a large body of water and rapidly hit the fog distance key (default 'F').
 * In beta 1.3, another easy way to find squid is to press F3, which displays a number over their head that is clearly visible from above ground.
 * Squid behave like some land Mobs and attempt to ride a Minecart. However this would not be very effective as minecart tracks cannot be placed underwater. (You can put it in and drain the water, it will not die, and is now transportable)
 * As of Beta 1.3, squid have the ability to move in three dimensions, rather than only along the bottom of the body of water.

Spawn
Squids currently spawn where there is a presence, or body, of Water.

Screenshots
Tintenfisch