The Gills Potion is a buff potion which grants the Gillsbuff when consumed. The buff allows the player to breathe underwater, preventing them from drowning. This lasts for 4 minutes / 2 minutes, but can be canceled at any time by right-clicking the icon (), by selecting the icon and canceling it in the equipment menu (), by double-tapping the buff icon (), or by canceling the buff from the buffs screen ().
Despite the tooltip states that player can "breathe water instead of air", they can still breathe air. This is because prior to 1.2, players could not breathe in the air if they used a Gills Potion. As such, this tooltip appears to be outdated.