The Lifestream, also known as Spirit Energy, is an ethereal substance called Mako that flows in streams just beneath the surface of The Planet. When seen beneath the Planet, it is shown as many separate bands of green-white fluid flowing as a whole. In several places, such as Mt. Nibel and Mideel, Mako Springs shoot out of the ground, creating a local spectacle.
The Lifestream contains the essence of the Planet and the memories, emotions, and knowledge of all who have lived on it. Portions of the Lifestream are believed to be used to create new life on the Planet, and the energy of a person returns to the Planet when they die, bringing with it the emotions, memories, and knowledge they obtained during life. It is referred to many times as the life of the Planet itself, and acts as an afterlife for the conscious spirits of the inhabitants of the Planet, as well as a sort of immune system for the Planet, flowing to and "healing" scars in the Planet. All life is said to exist within the cycle.
Mako and Materia
The Shinra Electric Power Company devised a way to refine the Lifestream into a continuous electricity supplier, posting Mako Reactor around the world to extract the Lifestream from under the Planet's crust. Shinra also discovered that injecting human with pure Mako enhances their abilities, and began creating an elite warrior class called SOLDIER using Mako-enhanced humans injected with Jenova cells. However, over-exposure to Mako can cause Mako poisoning.
Because the Lifestream is the source of life to the Planet, depleting the energy in this way causes the area surrounding Mako Reactors to wither and die. This is most evidence at Midgar, in which plants cannot grow and the surrounding area around the city is dull and barren of life. The air and water in Midgar are also highly polluted, although they may just be the pollution of the reactors themselves and not a result of the Lifestream being drained.
When Mako energy is condensed, Materia is produced. Materia allows the holder to access the Lifestream's knowledge and power and channel that power, manifesting as the phenomenon of magic. Most of the time Materia is artificially produced by forcibly condensing Mako, but at a few places, such as Mt. Nibel, natural Mako springs allow Materia to be produced naturally.