Mycelium

Mycelium is a block that was added in Update 0.9.0. It is similar to dirt, except fungi replaces the grass, even if there is light and grass is nearby. They spawn exclusively in mushroom biomes. Mushrooms can be planted on Mycelium regardless of light level.

Spread
Mycelium will take over Dirt, Grass & Grass Paths next to them. It will also destroy any flowers on blocks when it takes them over. Pumpkins and Melons will not grow on Mycelium, even if the stalk is fully grown. Mycelium can also spread underground.

Stopping
The only way to stop Mycelium from taking over a world, is to surround an area of mycelium with a non-dirt block (E.g. Cobblestone, Netherrack, etc.) However the player also has to put it beneath the mycelium to stop it from burrowing under the barrier. Oceans are natural barriers since Mycelium cannot traverse through water.

Trivia

 * It is a false belief that mushrooms can only be grown or found on Mycelium.
 * Mycelium is unobtainable as of yet in Survival Mode. (It may be when Enchanting is added).
 * Mycelium can't be tilled into a Farmland block.