Sugar Cane

Info
Bamboo was added in the v1.0.11 patch.

Bamboo (or papyrus, as many believe it to be) grows near water when placed on grass or dirt tiles. It grows quickly to a maximum height of three blocks, but can have more bamboo placed on top of it if desired.

Removing the bottom part causes all parts above it to be removed as well, allowing for quick harvesting; one can also "shave" off the upper sections and leave the bottom section planted. It can be crafted into paper.

Bamboo is like farming crops, they require light, grow on grass/dirt, and must be near water. Unlike wheat, bamboo must be planted on a grass/dirt block immediately adjacent to water, instead of being within four blocks of water. Diagonal blocks, as well as blocks above or below the water stream, won't allow it to be placed.

Bamboo can be found randomly, much akin to Cactus. There appears to be no pattern to the spawn algorithm.

Some have claimed the material to be papyrus, which has famously been used to make paper as early as 4000 BC. However, bamboo paper is the direct predecessor to modern paper invented by the Chinese in 104 A.D. It is easier to make paper out of bamboo, and the art supports the theory that this is bamboo.