We study the environmental instability of mechanically exfoliated few-layer black phosphorus (BP). From continuous measurements of flake topography over several days, we observe an increase of over 200% in volume due to the condensation of moisture from air. We find that long term exposure to ambient conditions results in a layer-by-layer etching process of BP flakes. Interestingly, flakes can be etched down to single layer (phosphorene) thicknesses. BP's strong affinity for water greatly modifies the performance of fabricated field-effect transistors (FETs) measured in ambient conditions. Upon exposure to air, we differentiate between two timescales for doping of BP FET transfer characterisitcs: a short timescale (minutes) in which a shift in the threshold voltage occurs due to physisorbed oxygen and nitrogen, and a long timescale (hours) in which p-type doping occurs from water absorption. Continuous measurements of BP FETs in air reveal eventual degradation and break-down of the channel material after several days due to the layer-by-layer etching process.