Some people suggest joking around or telling funny stories is completely forbidden. The Prophet (sawa) himself used to make jokes. Here is an authentic hadith from Al-Kafi:

“Once I asked abu al-Hassan (as): ‘May Allah keep my soul in service for your cause, can a man be with a people who speak and laugh at funny stories?’ The Imam said, ‘It is not an offense if there is not that.’ I (the narrator) then thought ‘that’ was his signal to indecent acts. The Imam then said, ‘Arabs would come to the Messenger of Allah and bring him gifts and then jestingly say, “Pay us for our gifts.” The Messenger of Allah would laugh. When he felt sad he would say, “What happened to the Arab man? I wish he comes by.”’”

Sanad: Muhammad ibn Yahya has narrated from Ahmad ibn Muhammad ibn ‘Isa from
Mu’ammar ibn Khallad who said the above hadith.

Source: Usool Al-Kafi, Volume 2, Hadith #3717

Grading: Allamah Al-Majlisi (rh) graded it Authentic/Sahih (صحيح) [Mira’at Al-Uqool, Volume 12, Page 567 (See Image)]; Bahboody also grades this hadith Sahih.

محمد بن يحيى، عن أحمد بن محمد بن عيسى، عن معمر بن خلاد قال: سألت أبا الحسن (عليه السلام) فقلت: جعلت فداك الرجل يكون مع القوم فيجري بينهم كلام يمزحون ويضحكون؟ فقال: لا باس ما لم يكن، فظننت أنه عنى الفحش، ثم قال إن رسول الله (صلى الله عليه وآله) كان يأتيه الاعرابي فيهدي له الهدية ثم يقول مكانه: أعطنا ثمن هديتنا فيضحك رسول الله (صلى الله عليه وآله) وكان إذا اغتم يقول: ما فعل الاعرابي ليته أتانا

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Imam Ali (as) also seemed to have a reputation for having a sense of humour. Allamah Baqir Sharif Al-Quraishi has mentioned in his book “The Life of Imam Ali ibn Abi-Talib”, the words of Umar bin Khattab – where he dismisses Imam Ali (as) as being a competent leader. Allamah Quraishi then shows the stupidity of such comment, as Imam Ali (as) – despite his sense of humour – never compromised truth, or his seriousness in leadership and religious administrative duties.

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Note: This is not a license to joking, teasing, or excessive laughing. There are other hadiths (graded hasan, muwathaq, or sahih) that state we must be conservative. For example:

Imam Sadiq (as): “Much laughing deadens the heart. He has also said, ‘Much laughing melts one’s religion just as water melts salt.’” (Al-Kafi, #3722)
“I heard abu ‘Abd Allah (as) saying, ‘Much laughing eliminates the dignity of one’s face.’” (Al-Kafi, #3727)