Diamond is a type of raw material found in Shale Outcrops, and in raw crystal form on the seabed. To find plentiful Diamonds, go to the Sea Treader's Path and break the Shale outcrops that the Sea Treaders stomp up.
Diamond does not exist in Large Resource Deposits.
Uses in Crafting
Spoiler alert: The following section contains story related material.
Mobile Vehicle Bay
Vehicle Upgrade Console