The Death Penalty results when a character has lost all Health Points and prevents players using death as a quick and easy way home. There are three different levels of penalties each dependent upon the character's "difficulty" setting.
- Main article: Softcore Mode
- A.K.A. "Normal Mode" on Consoles
As a Softcore (white) character, half of each coin type the character holds (rounded up) is dropped. It is possible to return and retrieve them. The character will spawn with 100 Health and minimal Mana. A character with 1 , 1 , 1 , and/or 1 will lose all his/her money. A softcore player's name and chat are displayed white in the chat.
- Main article: Mediumcore Mode
- A.K.A. "Difficult Mode" on Consoles
As a Mediumcore (purple) character, all of the character's items are dropped and he/she respawns with copper tools. It is possible to return and retrieve them. The character will spawn with 100 health, minimal mana, Copper Pickaxe, Copper Axe and Copper Shortsword. A mediumcore player's chat and name are displayed navy blue.
- Main article: Hardcore Mode
- This mode only on PC.
As a Hardcore (pink) character, the character dies permanently. Upon respawn (~5 seconds) at the location of death, the character will be a ghost and will not be able to interact with the environment anymore including blocks, NPC's, monsters, signs and so on. However, the character will be able to explore the entire world at standard movement speed. Upon leaving the world, the character will automatically be deleted. A hardcore player's name and chat is displayed red.
Dying because of an explosion that the player causes will not result in a death penalty. They will respawn with all of their money and Items (minus the explosive used). This is because the explosive is a player thrown consumable, so if a player kills another player with one, they don't get their coins.