Glowstick

Glowsticks are a new form of lighting. As of 1.0.5, Torches will no longer work underwater. Glowsticks, on the other hand, will. They work a bit differently from Torch, in that they cannot be stuck into the floor or attached to walls. (unless they're made into a Sticky glowstick) Instead, if you left-click while holding a Glowstick, your character will throw it in that direction. Glowsticks will emit light for a lengthy period of time after being thrown, and are eventually retrievable.

They can be bought from the Merchant for 20 Copper each, but he only sells them at night. They will not appear in his shop during the daytime. They are also dropped from Jellyfish. They can also be found somewhat commonly from underground chests.