The difference between “its” and “it’s” is very important, but it can be hard to remember. Luckily for you, this diction problem is a pet peeve of mine. If you still have a question when you’re finished reading this post, I need to find a new hobby. 
“It” is an impersonal pronoun for a thing. It is very useful when referring to the same thing multiple times in a short period. But what about when we’re talking about something that belongs to it? That’s when we use “its.”
Example: “It” is an over-ripe banana. I could say that “it is smelly,” or I could say “its atrocious smell is attracting rodents.”
“It’s” is always a contraction. Let me repeat that: “IT’S” IS ALWAYS A CONTRACTION. In other words, “it’s”=”it is.” Remember that the apostrophe is often used to represent a letter that has been dropped. To form this contraction, we’re dropping the extra “i.”
Example: Same over-ripe banana. I could say “It is going to become either banana bread or compost very soon,” or I could say “It’s going to become either banana bread or compost very soon.”
Note about “it’s”: Contractions (combining two words by dropping a letter or two and using an apostrophe) are always considered informal. If you are writing a paper for school (especially for English or certain non-writing teachers!), NEVER use contractions. It’s safer that way. Some writing teachers allow contractions occasionally because of the stated audience for the assignment.
How do I always figure out which to use? When I come to the word, I say “i-t-apostrophe-s=it is.” If I’m looking for “it is,” I use “it’s.” If I’m looking for the possessive form, I use “its.” I find it’s always easier to remember the difference between two similar words if you focus on the meaning and use of only one. If it’s not the one, then it must be the other.
Final tip: when in doubt, spell it out. You can’t spell out “its” because that’s the whole possessive word. You can spell out “it’s,” though, because you can write “it is” instead. If you spell it out, you can’t go wrong.
It is a pronoun. Its purpose is to reduce redundancy. It’s very common. And “it’s” is always a contraction.
October 6, 2008 at 5:20 pm
So, that probably answers my question about “yours” possessive, then, doesn’t it? Seems confusing, that we don’t need the apostrophe for “its house” or “what’s yours?” Good stuff! ~Jim
October 6, 2008 at 5:43 pm
Yeah, the English language has more rules than the Constitution has words. And there’s at least one exception to every rule. Who can wonder that we all get such headaches from writing?