In the first two Diablo games, death meant a restart in town, a possible loss of gold and/or experience points depending on the difficulty level, and most annoying of all, a long march back to your corpse to retrieve your equipment and money. It provided some occasionally intense moments, since another death before the corpse was reached could be catastrophic, but in a forum post on Battle.net, Diablo III community manager Bashiok says Blizzard realizes it was a hassle and has decided on a different approach to player death.
"Before I get into what we are doing let me go over some things we want to avoid with a death mechanic," he wrote. "We want to separate being in town and being out on a quest/adventure/dungeon as much as possible. Leaving the safety of a town should not be a decision you take lightly. We don't want to remove the sense of suspense and danger by making town something you're always going back to pretty much whenever you like. The intent is to create a greater separation from being in town, and not, and to make your time away from town a lot more tense."
"On that same note we also don't want to remove the player from the action. Throwing them back to town for every death really breaks up the action, and not in a fun, interesting or necessary way," he continued. "So, with these things in mind we've found that a checkpoint system works really well. Throughout your adventures, and generally at the ends of each 'floor' of a dungeon your character is saved to a checkpoint. When you die you're dropped back at the last checkpoint with a small amount of health, and the rest regenerates slowly."
Bashiok added that Blizzard is very happy with how the system is working, but that further changes to the system are likely as development progresses. "It's obviously a very forgiving system as it is. It's just too early to put a ton of thought into what penalties there should be, if any, added on top of it," he wrote. "Regardless, potential penalties aside, this is the death mechanic we're currently using and it's working really well so far."