Shotguns are ranged weapons that are widely considered to be the singular best weapon in the game, besides the Scepter. They are sold in weapon shops. All Shopkeepers carry a Shotgun and will use it on you if you provoke them.
A guaranteed Shotgun can be found by bombing the graves in Area 2 that read "Ash" (a shout out to the Evil Dead movies), which are sometimes found in Restless Dead levels.
A shotgun purchased in a shop costs $13,500 plus an additional 1500 per level beyond the first.
Functionality
A shotgun, recently stolen from a shopkeeper, being fired.
Shotguns fire a blast of 6 pellets (that each deal 4HP of damage) with a moderate reloading time between shots. The pellets are fired on slightly divergent trajectories and spread slightly as they travel, but this doesn't really affect long range accuracy.
A single Shotgun blast will kill most enemies, including Giant Spiders and other large enemies at close range (but may require several blasts at long range). The only enemies that can survive a full shotgun blast are Jaws and the Yeti King, which require 10 or 8 pellets to kill, respectively.
Shotgun blasts will also break open pots and kill Damsels. The Shopkeeper's Shotgun blast will likely kill you as well, unless you have many extra lives and are only grazed by a single pellet.
There is also a small amount of recoil (usually less than one tile) when firing (On ice this effect is amplified due to lack of friction, unless you have Spike Shoes equipped). Note that when attacking a Shopkeeper with a shotgun, at least five of your six pellets must hit in order for him to die.
Shotguns have unlimited ammunition.