What happens when you die?
This answer is outdated as of patch 2.0.1 - please see z's answer instead.
When you die, you need to wait a few seconds and then your character respawns in the last check-point or at the beginning of the current dungeon floor. You respawn with full health, full resources (unless you're a barb), and in the same game state (so no monsters are resurrected).
If you died during a boss of mini-boss fight (purple name), however, you respawn in the checkpoint right before the boss and the fight is completely reset - the boss has full HP again.
If you are level 10 or above, you lose 10% of the current durability of each of your items.
As of patch 2.0.1, you are now given 3 options when you die (after a 3 second timer):
- Respawn at your corpse
- Has a countdown of 5 seconds
- Limited to a total of 3 times within a short period of time
- Cannot be used during boss fights.
- Seems to replenish a 'charge' once every 1-2 minutes.
- Respawn at the last checkpoint
- Instant
- No limit to number of times
- Respawn in town
- Instant
- No limit to number of times
In Diablo III, dead players respawn at the last checkpoint they reached. The good thing is that you no longer have to hunt for your corpse, the character will be wearing all the equipment and will have full health.
I don't believe there is any experience or gold loss upon death either, but seems there is loss in durability of an item