Water

Water is a fluid that can only be placed by the player when using a bucket (unless hacked in the player's inventory). On newly-generated maps, water is common at ocean level also known as sea level (elevation 62) in the form of lakes. It also appears in pools, (and from Indev to Minecraft 1.0, springs) underground and lakes above ground. It can also be found in Village Wells, Desert Wells and sometimes as Springs / Waterfalls from a cliffside.

Though it cannot be placed by the player in single-player Creative, it could briefly be placed in Survival by detonating a Creeper in water and collecting 'water blocks'. It can be placed in Infdev, Alpha and Beta by using a bucket. There was also a Water-generating block in Indev mode, but has since been removed in newly-generated maps. However, they can still be placed in a map editor such as Omen and MC Edit.

Water cannot be found in The Nether and water from a bucket will evaporate as soon as it touches anything in there. Water "blocks" obtained through inventory editing can still be placed in The Nether.

Water reduces light by 2 for every block, in addition to normal dispersion.

Spreading
In Classic, Water spreads horizontally and downwards by duplicating itself to empty squares. Water spreads faster than the speed of a walking player, and if left alone covers everything at or below the level the water started at if there is a direct connection. Water is semi-transparent and slows down the player if he or she is moving through it.

In Beta, Water is much deeper and the player (and all other mobs, with the exception of the squid) starts to drown after his or her 15-second air gauge is eliminated. Water cushions fall damage to a certain extent, in the same way that it dampens horizontal movement as well (up to 16 blocks for a 1 block deep water, and 32 blocks above water for a 2 block deep water). You still can die from it, however. It is advised that you allow at least two, or three blocks of water for any unreasonable jump. Three blocks of water will guarantee survival.

In Infdev, Alpha, or Beta mode, Water spreads across surfaces in a slightly more realistic way but cannot spread on top of another Water block. This allows the creation of waterfalls in these modes. The player can pick up Water blocks from sources such as an ocean or a lake by use of a Bucket. When placed again, the Water creates a spring which generates flowing or falling water. When a spring is destroyed, all flowing water created from it will slowly dry up. If there is a hole six blocks or fewer from the point of origin, the water will tend to flow in that direction. Spawner blocks and falling water that has landed on a solid block will always flow in at least one direction unless restricted. Water will travel a distance of 7 tiles with the counter resetting every time it lands on a lower level. If a block next to a water spawner block is destroyed, the water will immediately flow in that direction unless there was a block beneath the destroyed block.

Management
Water tends to be harder to deal with on non-creative modes.

Placing a block in the same space as water will replace the water. Entire lakes can be filled this way. Some Decorations, Piston's head, Ladders and Sugar Cane will also displace water. In survival mode, blocks take a longer time to break while the player is underwater.

Using a redstone wire, a one-block water flow can be redirected by supplying power to the source block, which will cause it to reset the flow towards the now-nearest terrain depression. The flow can then be put back so that it is not redirected until a block change occurs again, as seen in this video. This re-calculation is made because redstone wire when toggled changes the block from redstone(on), to redstone(off). whenever a block updates on any side of water, the water re-calculates where to flow, but does not cut off its current direction of flow. By using the fact that flowing water destroys torches, it is even possible to create multi-usable water toggles, as seen in this video.

Water can flow up to seven blocks away.

Springs
In Infdev mode, springs can consist of either Water or Lava. Springs are randomly generated in caverns underground and sometimes above ground. Springs can also be placed by the player by picking up Water from the ocean by use of a bucket and then placing the Water again. A spring will generate Water which cannot flood a room because Water cannot spread on the top of another Water block. If a spring is removed, all Water that was created from it will also be removed, which makes it hard for things to be ruined by springs.

Infinite Spring Duplication
In Infdev, Alpha, Beta, and release, Water springs can be duplicated using a 3x1x1 pit with two buckets of water dumped in opposite sides. The middle of the pit will always be replenished, but when taking water out of the sides, it will not.

This can also be done in a 2x2x1 pit with two buckets of water dumped in diagonally opposite corners. Using this method, it does not matter where you take the water from. It will replenish itself regardless, even if one of the original source blocks of water is scooped up.

Source blocks cannot be duplicated over an area deeper than 1 block.

Water for Obsidian
You can use water for making obsidian. If water flows onto lava source blocks, the lava will turn into obsidian.(To get obsidian you have to get a diamond pickaxe)

Water for clearing tall grass
You can use water buckets to flush away tall grass for building. This is also an efficient way to harvest wheat seeds.

Water as blast controller
If a layer of water is spread between a destructible block and an explosion, the block will be protected.

A one-block-thick water screen will stop most explosions from reaching the other side, however, a player laying multiple blocks of TNT should mind the placement of the explosives, as primed TNT entities may launch each other through the water screen.

Water Elevators
In Classic, water can be held into a column by using a sponge. This can be used to make pillars of water, which can be used as elevators.

In Infdev, Alpha, Beta, and Minecraft 1.0, swimming halfway off of a falling/floating water tile prevents damage from drowning. The player can travel up a waterfall by moving into the base of it and jumping.

Water ladder
Used to facilitate quick climbing in a strictly vertical manner. The accessible portion of this structure is a 1x1 shaft, but if created above ground would require 3x3 blocks of horizontal space.

Since doors prevent water flowing through them, placing one under a water ladder will allow easier access due to the lack of excess water pushing you away.

Note that small water ladders can allow you easy entrance into underwater caves you've already built into.

Base Jumping
Water can be used to jump off of buildings and structures that would otherwise kill you by building a pool to land into. For each sixteen blocks of altitude the water must be one block deep, if the jump altitude is higher than sixteen blocks and the water is only one deep damage is taken from the total altitude minus sixteen (19 is safe). This can be used along with water elevators to enter and exit a very deep mineshaft or cave in a matter of seconds, saving time, and also saving the wood and stone otherwise used to make ladders and steps. It is recommended that you make a fairly wide pool in case you hit the edge and die. You can also hold the jump key to land in water only 1 block deep if necessary.

Water Brake
Alternatively, you can create a floating "water brake", using water held in mid-air with ladders, signs, or other non-solid blocks that resist water. Two or three blocks above the bottom of your vertical mineshaft, place a ladder to support the water block, then place the water block above the ladder. The way this works is that when the player collides with the water, it reverts the falling distance to zero and slows the player's downward velocity dramatically. The player can then safely land on the solid floor in a 2 block high air pocket under the water without taking fall damage or having to swim.

Water Tram
Road-like canals can be built with flowing water contained by signs, pressure plates, or similar blocks. This provides horizontal transportation by boat that is significantly faster than sprinting.

Water Bucket
Water can be collected by right clicking on a water block with a bucket, giving a water bucket. However only water spring/source blocks can be collected, not shallow flowing water.

Underwater Bases/shelters
If the player digs 3 blocks down into the bottom of a lake/water body, then digs into the wall of the hole (at least two blocks high), an underwater base can be made. To stop the water from flooding the base, dig the hole through which you enter 1 block deeper than the base's floor. Also, if you want to mine underwater, you can prevent drowning by digging a three block deep hole underwater, then going into the hole and covering the top with any material that blocks the flow of water. Alternatively, players may dig into walls or use signs to create air pockets. The hole will drain, because the water in that hole is flowing water, not a water source block. Cutting off the flowing water from the water source blocks the ocean is made of will drain the hole. If you wish to make a base on land that is hidden by water (to minimize theft or griefing in multi-player), you can use this method: Find a lake or body of water. Go to the bottom, and dig a 1 block hole as deep as you want it to be, then fill the hole with ladders. The ladders will eliminate the water, and you can jump in the lake and climb in and out of the hole (Though in order to climb out, you must hold the space bar when you reach the top of the hole in order to swim to the surface of the lake) Once you have filed the hole with ladders, you can dig/mine a cavern as large as you wish. You can use this cavern as your home or a base.

History
The texture for water was changed in the 0.0.19a client update (June 20, 2009), adding animation.

Before the 1.6 update, rain and snow would fall through water.

As of Beta 1.8, because of the change in how land is generated, if a player is in a world that was made pre-1.8 and travels into new chunks, there's a chance that a very, very large ocean may be formed as the Ocean biome. There will also be a one-block-high drop in sea level along the discontinuity between the old and new chunks with the old chunks being higher.

In Minecraft 1.0.0 and later, one-block ceilings of opaque blocks immediately below water will have a "leak" particle effect (as with Lava), alerting the player that digging that block will unleash a torrent of water. Glass or any other transparent block is exempt from this.

As of 1.8, Ice could be used to bring water into the Nether in creative mode. The ice can be melted with a light source to make water. However, the water block will have to be updated in order for it to flow. Before Minecraft 1.0.0 it was impossible to mine ice with a tool enchanted with Silk Touch. A player would have needed a mod or admin privileges to get ice into their inventory.

Bugs

 * As of Beta 1.6, water that flows on top of objects that normally pop out of the way from water approaching from the side are destroyed as the block below is replaced with water.
 * On some occasions, water in one chunk does not flow into newly generated chunks. This tends to occur more often in areas with enormous differences in height.
 * One cannot see cracks from mining if the block is underwater and the player is not; this does not work in reverse.
 * Underwater air pockets may appear in the middle of the ocean occasionally. They are seldom visible from the surface when they appear however.
 * Water dripping through signs, glass, fences, etc. looks odd. Notch has stated that it should probably not drip through glass.
 * In 1.2.3 (may have been in earlier versions) when riding water going in a diagonal direction then going down a block with no water there will cause you to jump.
 * Sometimes air bubbles don't appear in the GUI when in diagonal water
 * Sometimes after clearing water with currents on land can leave a flat layers of water
 * Water does not drip when placed on half blocks. This includes both normal and upside down.

Trivia

 * Zombies and Skeletons can survive daylight if they are in water. Zombies in PE cannot survive daytime in water.
 * Endermen take damage, teleport, and become neutral when in contact with water. This makes water buckets useful for if you have accidentally angered an Enderman.
 * Dropped items in flowing water now move faster as of version 1.5.
 * The texture for water is generated procedurally - there is no animated water texture in minecraft.jar, nor in the terrain.png inside.
 * If you sneak while in water, you will be as slow as if you were swimming in lava.
 * In Classic, water flows without animation. This means it's infinite unless a player blocks the water.
 * With item editors, you can get the water block itself. This doesn't affect the physics similar to fire in which you can get the actual fire block.
 * While underwater, the player's FOV is lowered to simulate light refraction.
 * If there is a block in the water without a water source block directly beneath it, there is a small pocket of air beneath it. If a player swims up while underneath this block and holds the space bar, a glitch may occur; the water itself will look like air and will no longer seem to block light while holding the space bar. This glitch allows a clear view of the ocean floor, and also applies to lava. This glitch is client-side only, and may cause drowning in multiplayer.
 * Blocks take 5 times as long to break if the player is underwater, and 25 times as long if they are both underwater and not touching the ground.
 * If you have a waterfall with no blocks directly next to it on any side (diagonal is OK), you move faster up the waterfall. Signs, ladders, etc. are declared "blocks" in this case, and will make you move slower.  In other words, the pattern below will make you move faster up a waterfall (and slightly slower down the waterfall). In the diagram below, A is air, B is blocks, W is water.  As long as you maintain the four air blocks around the water, you will move faster upwards.
 * Since 1.8, particles can be seen throughout the water. This is most noticeable underwater, but can also be seen above. The particles suspended in water are the same as the particles seen near bedrock level.
 * Prior to 1.0.0, the Silk Touch enchantment could be used to gather ice in Survival mode and bring it to the Nether, making it perfectly possible to bring water to the Nether.
 * Briefly in 1.9 Prerelease 5 both water and lava would appear when surrounded horizontally by four source blocks, regardless of the block underneath. Additionally water would form source blocks underneath new source blocks, creating pillars as far down as it could go unobstructed.
 * As of 1.9 Prerelease 6, when water is not beneath any block, it will freeze in snowy biomes. However, breaking the ice block will still release water.
 * Water can be used to clear grass and flowers more quickly. Simply use a water bucket to place a water source, let it break all the grass and flowers in its radius, and simply pick up the source block again when it's done.
 * Water flows at 0.25 seconds per block (1/4 second/Block), Taking it approximately 1.75 second to reach the maximum water range on a flat surface (7 blocks excluding the source).
 * The only hostile mob to be able to swim/ford upstream towards the player are cave spiders and normal spiders. The rest do not have enough strength and are swept downstream.
 * If you look at water from a distance it will appear to be vibrating.
 * Water flows at 0.25 seconds per block (1/4 second/Block), Taking it approximately 1.75 second to reach the maximum water range on a flat surface (7 blocks excluding the source).
 * The only hostile mob to be able to swim/ford upstream towards the player are cave spiders and normal spiders. The rest do not have enough strength and are swept downstream.
 * If you look at water from a distance it will appear to be vibrating.

Gallery
Blocks under water will only take longer to break if your head is under water. If your head is above water the block will be destroyed quite fast.