Slime

The Slime is the fifth hostile mob, and was added on July 23, 2010 (Seecret Friday 6! Alpha 1.0.11). They appear as green semi-transparent cubes. Slimes come in four official sizes: huge, big, normal, and small. They are the first hostile mob that can spawn in both light and dark areas. These creatures are only naturally found deep underground in the bottom 16 layers of the map. They usually spawn in large, cavernous spaces or in open mines. This is partially caused by the fact that a large space is needed for them to spawn.

Attacking a slime will cause it to break into four smaller sized slimes unless a weapon that does more than 2 hearts of damage is used (See Weapons for the damage). Currently, Slimes do not grow larger over time. The small slimes are harmless and can only push the player around. The smallest variation of slime are often kept as pets by players. This is because they do not do any damage and follow the player around harmlessly.

They only spawn onward from easy to hard. They used to spawn on all difficulties, even peaceful. Later, this was fixed.

Slimes of any size will begin to take burn damage upon touching lava and die moments later without splitting into smaller slimes. Slimes cannot swim; therefore, they will drown if they are completely submerged in water and will be unable to jump out. Slimes have the ability to climb ladders, enabling them to follow the player out of caverns.

Killing a small slime yields 0-2 units of Slimeballs, which currently serve no purpose whatsoever.

Notch confirmed in Coesquest's livestream that slimes have been returned as of Beta 1.2_01, but are very rare, and have an increased spawn rate in Beta 1.3.

Drops
Beta:
 * 0-2 units of Slimeballs (Small slimes only)

Trivia

 * By editing the mob's files, it is possible to make slimes much larger, some values creating 50-block-high slimes.
 * When slimes were first introduced, they spawned at a very high rate. This caused Notch to limit slime spawning. However, it appears that he incorrectly calculated slime spawning, leading slimes to spawn only in strange locations. This eventually caused Notch to completely disable natural slime spawning until Beta 1.2_01. As of Beta 1.3, Slimes spawn have been increased once again, appearing much more commonly than in 1.2_01.
 * Slimeballs can be farmed by punching Slimes to death instead of using a tool like a sword or an axe. This gives the slimes a 100% of splitting into four more slimes, instead of merely dying. This means: 1 Huge Slime = 4 Big slimes = 16 normal slimes = 64 small slimes = 0-128 drops.
 * Slimes can be killed by snowballs and eggs.
 * Small slimes can be kept as pets when found, due to the fact that they will follow the player but won't attack.
 * Slimes may have been inspired by the Gelatinous Cubes from the Dungeons & Dragons role-playing game, seeing as the iconic monster is portrayed as a huge cube of greenish slime in artwork.
 * Even as of Beta 1.3, Slime are able to spawn on peaceful (Possible Glitch or Bug). Slime on Peaceful.png