Clay

Clay is a block that can be found below water. It can be smelted to form terracotta.

Breaking
Clay blocks can be mined with anything, but shovels are quickest. Destroying a clay block yields 4 clay balls. If broken with a tool enchanted with silk touch, it drops itself instead. Destroying a clay block with a tool enchanted with fortune does not increase the amount of clay dropped.

Natural generation
Clay is commonly found at the bottoms of rivers and lakes in shallow, crystal-shaped patches, disregarding adjacency to other types of blocks. It can also be found commonly in swamps.

Clay also generates in large quantities on the floors of Lush Caves.

Clay generates inside mason houses in plains, savanna, and desert villages.

Villager gifts
If a player has the Hero of the Village status effect, a mason villager might throw that player a clay block as a gift. This is the only renewable way of obtaining clay and clay blocks.

Note block
Clay can be placed under note blocks to produce flute sounds.

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Trivia

 * In real life, clay can actually be reddish-brown, not just gray, and can be often found under the surface and away from sand. This color is reflected in the appearance of terracotta, bricks, and flower pots.