infinitive      present                 past            participle
to lie          lie,lies                lay             have/has lain
to lay          lay,lays                laid            have/has laid

To lie is to recline, or sprawl out, as in "I think I'll lie in the sun. Yesterday I lay in the sun. Have you lain in the sun?"

To lay is to set, as in "I can't find my pencil. I laid it on the table a minute ago, where I always lay it. I've laid it there every day for the past 17 years!"

To help remember:

• lie is an intransitive verb (no direct object): "I lie."
• lay is a transitive verb: "I lay your mom."

Something a writing instructor once told me that has stuck with me ever since and helped me remember the difference:

"Ducks lay down, not people."

Actually, ducks don't lay down any more than people do. They lay eggs. The way it works is "People lie, ducks lay." Or, as I learned it, chickens.

Update: It has been pointed out to me that Ducks line their nests with their down and thus,in construction terms, do lay down. A new meaning to "comfy layers of down".

The most famous person to ignore both ducks and chickens is probably Bob Dylan in "Lay, Lady, Lay" who isn't, in the song, doing it in the Gritchkaian sense, and has confused a generation.

A lie is the cause, a lay is the effect... if she believes your lie.