Answer Clarification - Android Studio supports JDK8
The following is an answer to the question "What version of Java does Android support?" which is different from "What version of Java can I use to run Android Studio?" which is I believe what was actually being asked. For those looking to answer the 2nd question, you might find Using Android Studio with Java 1.7 helpful.
Also: See http://developer.android.com/sdk/index.html#latest for Android Studio system requirements. JDK8 is actually a requirement for PC and linux (as of 5/14/16).
Java 8 update (3/19/14)
Because I'd assume this question will start popping up soon with the release yesterday: As of right now, there's no set date for when Android will support Java 8.
Here's a discussion over at /androiddev - http://www.reddit.com/r/androiddev/comments/22mh0r/does_android_have_any_plans_for_java_8/
If you really want lambda support, you can checkout Retrolambda - https://github.com/evant/gradle-retrolambda. I've never used it, but it seems fairly promising.
Another Update: Android added Java 7 support
Android now supports Java 7 (minus try-with-resource feature). You can read more about the Java 7 features here: https://stackoverflow.com/a/13550632/413254. If you're using gradle, you can add the following in your build.gradle:
android {
compileOptions {
sourceCompatibility JavaVersion.VERSION_1_7
targetCompatibility JavaVersion.VERSION_1_7
}
}
Older response
I'm using Java 7 with Android Studio without any problems (OS X - 10.8.4). You need to make sure you drop the project language level down to 6.0 though. See the screenshot below.
What tehawtness said below makes sense, too. If they're suggesting JDK 6, it makes sense to just go with JDK 6. Either way will be fine.
Update: See this SO post -- https://stackoverflow.com/a/9567402/413254