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In a minecraft 1.2.3 world, I have created an underground area for growing trees. The four dirt blocks you see (two on left) all can grow trees, but with the others, they never grow, even when using bone meal.

Underground Tree Farm

The vertical wall is six blocks high, and they all have two clear spaces beside them. The only thing is that the one dirt block you see closest is also just outside the opening of a straight and normal stairwell. Does that affect it too?

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Torches count as a full block for the purposes of this. Try putting the torches on the ground. – user9983 Mar 11 '12 at 2:28
I would raise the roof one block, or use birch saplings. – Zoredache Mar 13 '12 at 8:05

Put the torches on the ground next to the saplings. You may also have a bit of trouble from the two on the left being so close to the wall.

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I didn't think the space would be a problem, as I've grown trees in very close proximately before, and they have seemed to grown into one big tree trunk. Likewise in my treehouse I have seen trees grown upto the world height - they end up looking like mushrooms! :-) Whether that would be the same with a stone barrier remains to be seen. – wonea Mar 11 '12 at 19:43
@wonea Oaks don't care about proximity to each other, but they do care about proximity to a wall. – SevenSidedDie May 26 '13 at 16:37

6 blocks high isnt high enough for certain size trees to grow, i would suggest going to 8 blocks high as well giving them three blocks of space on all sides. i would also suggest making the square with the sapling on it one block higher then the floor with a torch against the higher block. trees will just refuse to grow if there is not enough space for them to grow.

trees grow a certain size randomly so for example if a tree growing 8 blocks tried to grow in your small 6 block high it wouldnt grow at all, this is why bonemeal is not working properly. i wouldnt suggest going higher then 8 blocks unless you enjoy climbing through leaves in search of random wood blocks

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Try placing torches in the squares immediately adjacent to the saplings. That will ensure that they have enough light.

Then go get some bonemeal from your friendly neighborhood skeletons. Apply the bonemeal to the saplings: boom, instant tree.

When I grow underground forests, I also put torches on the trunks. That way, I know that there's no chance for a stray shadow to either slow the growth of the trees or to give a pesky zombie a chance to spawn.

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Put water blocks around each tree, i dont know if it does anything but it seems to work for me.

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Water has no influence on treegrowth at all. This is an old myth. – Arperum May 9 '14 at 10:53

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