Dispenser

A Dispenser is a special block available since Beta 1.2. When right-clicked, a menu allows you to place items inside it. Each time the block receives power from a redstone circuit, a random item from its inventory drops out. Dispensers resemble furnaces, but the two blocks have different uses and crafting recipes.

Unlike chests, when a dispenser is destroyed, the items inside are gone forever. Notch has stated that this is a bug:.

Crafting
When placed, the dispenser faces the player (it will dispense items towards where the player is standing).

Dispensing
Most items placed in a dispenser will simply be ejected as items and land 2-4 blocks away if on level ground. Arrows, eggs, and snowballs that are stored inside the dispenser are instead fired out (as if they were right-clicked in your inventory). Arrows will cause damage (and cannot be picked up, like arrows fired by skeletons); eggs and snowballs break with all the usual effects. In addition, any projectiles shot by the dispenser do not knockback the mobs that it hits. It is unsure whether this is a bug or not.

Unlike most other redstone-triggered devices, it may be triggered by redstone wire placed up to one block adjacent to it as well as running directly into it; therefore a single redstone wire can trigger up to 5 dispensers in a cross pattern. This allows for easy creation of large walls of dispensers.

When a dispenser dispenses an item, it emits a clicking sound and a puff of smoke. If it is empty when activated, it emits a slightly higher-pitched click.

A dispenser will work if it is placed underwater, even without any blocks touching it by placing a redstone torch underneath it. Also it can be properly wired by placing the redstone in a tunnel underneath the water.

If the face of the dispenser is covered by a block, and the dispenser is facing west or south, fired items will pass through the block. This will soon be fixed.

A tutorial on the dispenser can be found here.

Trivia

 * The Dispenser uses the same texture as the Furnace on all sides except the face, which has a unique texture.
 * Interestingly, the texture file for the dispenser menu is named "trap.png", possibly because it was originally designed for making arrow traps.
 * It is possible to make a very simple dispensing mechanism by attempting to place a stone button on the floor in front of a dispenser. Because the button cannot go on the floor, it will default to the dispenser, creating a dispenser which can simply be clicked to receive items, but cannot be tripped by mobs.
 * If a redstone torch is placed directly above, below, or adjacent to the dispenser, the dispenser will fire twice every time its powered and un-powered by another input.

Dispenser