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Diamonds exhibit a high dispersion of visible light. This strong ability to split white light into its component colors is an important aspect of diamond's attraction as a gemstone, giving it impressive prismatic action that results in so-called fire in a well-cut stone. The luster of a diamond, a characterization of how light interacts with the surface of a crystal, is brilliant and is described as adamantine, which simply means diamond-like. This is owed to their high refractive index of 2.417 (at 589.3 nm), which causes total internal reflection to occur. Some diamonds exhibit fluorescence of various colors (predominately blue) under long wave ultraviolet light. Nearly all diamonds fluoresce bluish-white, yellow or green under X-rays and this property is used extensively in mining to separate the fluorescing diamond from the non-fluorescing rock. Most diamonds show no fluorescence although colored diamonds show a wider range of fluorescence than the blue fluorescence normally observed in clear diamonds

Except for most blue diamonds, which are semiconductors, diamonds are good electrical insulators. Blue diamonds owe their semiconductive property to boron impurities, which act as a doping agent and cause p-type semiconductor behavior. Blue diamonds which are not boron-doped, such as those recently recovered from the Argyle diamond mine in Australia that owe their color to an overabundance of hydrogen atoms, are not semiconductors.

Unlike most electrical insulators, diamond is a good conductor of heat because of the strong covalent bonding within the crystal. Most natural blue diamonds contain boron atoms which replace carbon atoms in the crystal matrix, and also have high thermal conductivity. Specially purified synthetic diamond has the highest thermal conductivity (2000–2500 W/(m·K), five times more than copper) of any known solid at room temperature. Because diamond has such high thermal conductance it is already used in semiconductor manufacture to prevent silicon and other semiconducting materials from overheating.

Diamond is formed by prolonged exposure of carbon bearing materials to high pressure and temperature. On Earth, the formation of diamonds is possible because there are regions deep within the Earth that are at a high enough pressure and temperature that the formation of diamonds is thermodynamically favorable (see the diamond phase diagram and geotherms here). Under continental crust, diamonds form starting at depths of about 150 kilometers (90 miles), where pressure is roughly 5 gigapascals and the temperature is around 1200 degrees Celsius (2200 degrees Fahrenheit). Diamond formation under oceanic crust takes place at greater depths because of higher temperatures, which require higher pressure for diamond formation. Long periods of exposure to these high pressures and temperatures allow diamond crystals to grow larger.

The slightly misshapen octahedral shape of this rough diamond crystal in matrix is typical of the mineral. Its lustrous faces also indicate that this crystal is from a primary deposit.Through studies of carbon isotope ratios (similar to the methodology used in carbon dating) except using the stable isotopes C-12 and C-13, it has been shown that the carbon found in diamonds comes from both inorganic and organic sources. Some diamonds, known as harzburgitic, are formed from inorganic carbon originally found deep in the Earth's mantle. In contrast, eclogitic diamonds contain organic carbon from organic detritus that has been pushed down from the surface of the Earth's crust through subduction (see plate tectonics) before transforming into diamond. These two different source carbons have measurably different 13C:12C ratios. Diamonds that have come to the Earth's surface are generally very old, ranging from under 1 billion to 3.3 billion years old.