Herobrine

Herobrine is the subject of an old scare-story, where a person with the default skin, and completely white eyes appeared in singleplayer games.

He is actually a retextured painting or iron door of the default skin with no eyes. This originated a long time ago, when a "creepy-pasta" was made about Herobrine.

The Hoax
The creator of the stream "Brocraft" who goes by the name "Copeeland", along with his friend, "Patimoose" staged the whole hoax. Herobrine was then introduced in the Brocraft stream (at 20:45).

There was another video where herobrine was in the middle of Patimoose's lava field. Patimoose then went back up the stairs he went down. Saved and quit. He came back 10 minutes later, where there was another Brocraft stream. Patimoose then told his wife he was "trolling", which strengthened the fact that the Herobrine incidents were all staged

Most of the video consists of Patimoose getting reactions from everyone that was in chat. At the end of the video Patimoose fakes his game crashing.

After his game "crashed", all members then saw this page, featuring the default Minecraft face with real eyes in the place of the normal block eyes.

When viewing the page's source, there is a jumble of characters and letters. after removing all non-alphabet characters, the following message is revealed.

The message keeps telling the viewer to "wake up", implying they're living in a fantasy, and this text hidden in the page is their "note".

There are a couple theories on how they created this prank. One theory is that it was a re-textured painting, while another theory is Patimoose and Copeeland altered the iron door texture.

Future update
Notch has posted on twitter about the subject of Herobrine.

Although this confirms that there is no Herobrine, it suggests that Notch plans to add him as an entity in the near future, presumably acting in a similar way to the faked Herobrine.

At Minecraftcon 2010, Notch confirmed Herobrine will be in the game, probably in a far future seecret friday update.

While many groups disagree over Herobrine's existence, the majority opinion is, until the friday update he is included in, he does not exist. Although Herobrine may very well appear in Minecraft due to the prank, and likely when is least expected.