The radiative cooling of optically thin gaseous regions and the formation o
f a two-phase medium and of cold gas clouds with a clumpy substructure is i
nvestigated. We demonstrate how clumpiness can emerge as a result of therma
l instability. In optically thin clouds, the growth rate of small density p
erturbations is independent of their length scale as long as the perturbati
ons can adjust to an isobaric state. However, the growth of a perturbation
is limited by its transition from isobaric to isochoric cooling when the co
oling timescale is reduced below the sound crossing timescale across its le
ngth scale. The temperature at which this transition occurs decreases with
the length scale of the perturbation. Consequently, small-scale perturbatio
ns have the potential to reach higher amplitudes than large-scale perturbat
ions. When the amplitude becomes nonlinear, advection overtakes the pressur
e gradient in promoting the compression, resulting in an accelerated growth
of the disturbance. The critical temperature for transition depends on the
initial amplitude. The fluctuations that can first reach nonlinearity befo
re their isobaric to isochoric transition will determine the characteristic
size and mass of the cold dense clumps that would emerge from the cooling
of an initially nearly homogeneous region of gas. Thermal conduction is, in
general, very efficient in erasing isobaric, small-scale fluctuations, thu
s suppressing a cooling instability. A weak, tangled magnetic held, however
, can reduce the conductive heat flux enough for low-amplitude fluctuations
to grow isobarically and become nonlinear if their length scales are of or
der 10(-2) pc. If the amplitude of the initial perturbations is a decreasin
g function of the wavelength, the size of the emerging clumps will decrease
with increasing magnetic field strength. Finally, we demonstrate how a two
-phase medium, with cold clumps being pressure confined in a diffuse hot re
sidual background component, would be sustained if there is adequate heatin
g to compensate the energy loss.