The most common variety of charcoal, wood charcoal, was formerly prepared by piling wood into stacks, covering it with earth or turf, and setting it on fire. In this process volatile compounds in the wood (e.g., water) pass off as vapors into the air, some of the carbon is consumed as fuel, and the rest of the carbon is converted into charcoal. In the modern method, wood is raised to a high temperature in an iron retort, and industrially important byproducts, e.g., methanol (wood alcohol or wood spirit), acetone, pyroligneous acid, and acetic acid, are saved by condensing them to their liquid form. Air is not really needed in the carbonization process, and advanced methods of charcoal production do not allow air to enter the kiln. This results in a higher yield, since no wood is burned with the air, and quality is improved. Charcoal is also obtained from substances other than wood such as nut shells and bark; that obtained from bones is called bone black, animal black, or animal charcoal.

Charcoal yields a larger amount of heat in proportion to its volume than is obtained from a corresponding quantity of wood and has the further advantage of being smokeless. The greatest amount is used as a fuel. Charcoal is often used in blacksmithing, for cooking, and for other industrial applications. One of the most important applications of wood charcoal is as a component of gunpowder. It is also used as a reducing agent in metallurgical operations, but this application was diminished by the introduction of coke. A limited quantity is made up into the form of drawing crayon. Bamboo charcoal is the principal ingredient in sumi-e, a form of Japanese ink painting that uses only black ink in various concentrations.

Because of its porous structure, finely divided charcoal is a highly efficient agent for filtering the adsorption of gases and of solids from solution. It is used in sugar refining, in water purification, in the purification of factory air, and in gas masks. Wood charcoal can remove coloring agents from solutions, but this is accomplished more efficiently by animal charcoal. By special heating or chemical processes the adsorptive property can be greatly increased; charcoal so treated is known as activated charcoal.