Lava

Lava is a liquid found commonly in large pools once the player has reached a certain depth (about 1200-1500 feet below on the Depth Meter). It will cause a large amount of damage to the player and monsters, and oftentimes falling into lava is fatal. If water touches Lava, the Lava turns into Obsidian. Burrowing Monsters seem to have an immunity to Lava damage. When lava comes in contact with most placed items, it will burn through them. However, Lava will not burn through regular Wood Blocks, and will also not burn through closed Wooden Doors (though as soon as the door is opened it is destroyed). The Obsidian Skin Potion grants immunity to lava, and Flippers will allow you to swim in lava. However, you can still drown similarly to Water, but this can be undone with Gills Potion because with this you can breathe water/lava, instead of Air. The Diving Helmet / Diving Gear could also work.



Lava deals 100 Damage to the Character modified by the player's Defense, and 50 Damage to monsters modified by the monster's Defense. Lava was thought to incinerate dropped items that are 100% covered by a Lava tile; however, further experimentation has shown the amount is closer to 25%. The optimal way to create a Trap is to have 1 Bucket of lava for every 6 blocks of the Trap, this way it still damages the player and creatures without destroying any Coins or loot.

Players and monsters who are harmed by Lava will always receive the "On fire!" Debuff.

Duplication
Build a large pit 1 block deep, and another pit below that pit. Pour a Bucket of Lava into the top pit and scoop it back out, then mine a hole to allow the remaining lava into the lower pit. You can then take that lava with the bucket.

This procedure can have varying results; sometimes it will work properly and you may even have lava left over in the lower pit. Other times it can be less successful, only yielding one duplicated Bucket per two normal ones.

Read more about duplicating liquids.