NPCs are friendly automated non-player characters that provide services to players.[1]

Standing near an NPC and pressing the ⚷ Interact will open a dialogue window with one or more options for the player to select. Most NPCs are vendors, displaying a shop inventory when the "Shop" option is selected. They sell items to players in exchange for coins, and can be sold items by a player to obtain coins. Some NPCs also have other options that perform other functions.

Most NPCs are town NPCs, appearing after various milestones are achieved in game advancement. They move into structures the player must provide, known as houses, which are generally required for town NPCs to remain available. Each NPC will need their own house, with the exception that a pet and non-pet NPC may share a house. NPCs will not move in if time freeze is on while playing Journey mode.

NPCs can reduce enemy spawn rates in the area, an effect that increases the more of them are present. With 3 or more town NPCs nearby, enemies generally stop spawning on or near the visible screen altogether (unless in Expert Mode or Master Mode)[2]. Players tend to utilize this effect by building large structures (towns or bases) with several integrated houses, to serve as their safe area. These reductions are usually overridden by events like Blood Moons or Goblin Invasions, during which spawn rates return to normal or are elevated, and enemies will once again attack players and NPCs in the area.

Town NPCs generally walk around during the day. They remain still in their assigned houses at night and during events. NPCs have limited health and can take damage, and ultimately die from enemies, traps, lava, or by drowning in water; however, they cannot be attacked directly by players (outside of special Voodoo Doll accessories, Rotten Eggs, or the Flymeal). They do not suffer from fall damage and their health regenerates over time. The Nurse can furthermore heal herself and other nearby NPCs. Additionally:

Town NPCs will attack nearby enemies, each NPC having their own unique form of attack. They will not actively pursue combat, however, but rather attack in an act of self-defense.
Town NPCs gain defense and damage boosts based on which bosses have been defeated in the current world.
Occasionally, NPCs sit in chairs and randomly "talk" to other NPCs or the player (shown as mouth movement and speech bubbles).
If an NPC is killed, they will respawn after a delay, as long as a suitable vacant house is still available. If the NPC has an inventory or population requirement for their initial spawn (e.g. the 50 requirement for the Merchant), that has to be met again for the respawn. However, a rescued NPC will remain rescued, and respawn without needing to be found again.

There are currently 26 / 23 / 21 / 19 Town NPCs, 8 / 7 / 6 of whom normally appear in Hardmode. An additional 3 / 2 / 1 NPC(s) can be encountered who do not move into houses.