Guano is an item dropped periodically by Batilisks and sometimes when Batilisks are killed. Since they fly around unplugged Sinkholes during the night, Guano can often be found nearby. It is similar to the Manure produced by surface-dwelling creatures such as Beefalo, except that it is a greyish white color.
It can be used to fertilize farm plots and is 1.5x more effective than normal Manure. However, Guano cannot be used to create new farms. It can also be used as a fuel source, creating a gas cloud when burned.