This is something I've wanted to play around with for some time. Ferrofluids are liquids that contain nanometer-sized magnetic particles suspended in a carrier solution. When the solution gets close to a magnetic field, it solidifies and shapes itself according to the shape of the magnetic field.
There are a number of methods for making ferrofluid at home, some rather complex, others less so. The general consensus is that a ferrofluid needs to contain about 5% magnetic substance, 10% surfactant (an agent that keeps the magnetic particles from clumping), and 85% carrier fluid. Most of the methods for making ferrofluid I've located use either vegetable oil or kerosene.
The method outlined here at sci-spot.com is the most complex and uses oleic acid as the surfactant.
The easiest way I discovered (apparently) uses laserjet toner as the magnetic component, and vegetable oil as the carrier and surfactant all in one.
Yet another interesting way to do this is a post on instructables.com where you get your magnetic particles by using acetone to pull iron oxide particles off of old audio or VHS tapes. However, according to the comments VHS tape doesn't always respond as it's supposed to, so something stronger might be in order.