Once the Pumpkin Lantern is placed on the ground, it will only illuminate at dusk and at night. It will slowly rot on the ground for about 10-13 minutes (depending on the season). Once it rots, you'll lose the ingredients. However, if you move to it with nothing in your hands, you can pick the Lantern up. If you are carrying a tool or weapon, you'll simply smash it on the ground so be careful. Once in your inventory, you can take it apart to get the ingredients back. This allows you to make a new one and essentially have a perpetual source of light.