Lava

Lava can be bought or traded for in the form of a Lava Bucket, or you can collect it with an empty bucket.

When in lava, you will take 25 damage every second. If you are wearing Ember Armor or are holding a Fire Talisman in your hand or Accessory Bag you will be immune to its damage, but a Fire Talisman also helps reduce damage, although not completely. Having a buff activated will also grant immunity.

Obtaining
Right-clicking lava with a bucket at:
 * Deep Caverns Entrance (right from the bridge, climb down carefully)
 * Blazing Fortress
 * Player's Island (If placed down with a Lava Bucket)
 * Obsidian Sanctuary in the Deep Caverns

Buying Lava Bucket at the Builder NPC.

Exchanging 20 coins for a Lava Bucket from a trade unlocked from Magma Cream VI.