When a small group of scientists, led by Kurt Mandl, began to terraform the planet, they noticed that areas of the sand looked like "the light shining off newly fallen snow." These shining patterns soon became less random, however, and formed geometric shapes and moved. It was later realized that this was a form of communication; however, as the Federation had declared the planet lifeless, the terraformers weren't looking for life, and dismissed it.
This changed in 2364, however, when Arthur Malencon was killed in what appears to have been sabotage of the laser drill's programming. Upon investigation by an away team from the USS Enterprise-D, Data discovered a single-celled compound with glowing properties. Despite being inorganic, it was defined as alive when it reproduced on the Enterprise. Furthermore, it appeared intelligent when it connected to the Enterprise's computer and attempted to communicate via the universal translator.
Spectral analysis on board the Enterprise allowed better definition as to its chemical content. It was comprised of silicon, germanium, gallium arsenide, cadmium selenide, sulfide, water, sodium salt, and various impurities.
The lifeform continued to reproduce and gain more control of the computer, securing environmental controls and deflector shield and transporter energy directed towards it. Data theorized that the lifeform was akin to a computer, becoming more sophisticated as it reproduced further. It expended an enormous amount of energy during reproduction, with little sign of energy loss from the ship's systems, leading to Data and Geordi La Forge to realize that the lifeform must have been using light energy to keep itself alive. This was corroborated further when it was discovered that the lifeforms on the planet lived in an area it referred to as "wet sand" – a soil layer near the water table, but where light still shined through. The water contained a saline solution, and each lifeform was connected to every other through this solution, forming a sophisticated collective consciousness. This was threatened when the water table was being siphoned and cleansed, leading to them declaring "war" on the "bags of mostly water" – Humans.
This war ended shortly afterwards when Captain Picard darkened the lights in the medical lab where the sample of the lifeform was being studied and taking control of various systems. Picard convinced the microbrain that the Federation was unaware of life on Velara III, and would leave the planet in peace if the microbrains would call off the war. The microbrain agreed, believing Picard's sincerity yet deciding not to trust Humans for a period of three centuries, agreeing to see them again then. To that end, Picard ordered a quarantine around the planet. (TNG: "Home Soil")