Shadow gem is an item dropped by Shadow Beasts.
You can combine nine Shadow Gem Shards to make one Shadow Gem. In a Crystallizer, Shadow Shoggoth Flesh gives 1 Shadow Gem, along with 8 Crystallized Phosphorous Shards. A Staff of Rending filled with Shadow Energy will produce 1 Shadow Gem after exceeding 200 points.
Combine with Transmutation Gem to create Shards of Oblivion. Shadow Gems are needed to Craft Stone Tablets, along with various items related to PE Generation and Manipulation, such as the Energy Pedestal and Sacrifical Altar. Shadow Gems are also used to upgrade the player's Staff of Rending once proper progression conditions are met. 3 Shadow Gems are required to Craft the Energy Dispositioner due to the requirement of the Energy Relay used in its Recipe.
Shadow Gems can also be rarely found inside chests from Dungeons, Mineshafts, Stronghold Corridors, and Desert Temples.