You lay down the book you've been reading, but you lie down when you go to bed.
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If the subject is lying down, then it's "lie."
This distinction is often not made in informal speech, partly because in the past tense the words sound much more alike: "He lay down for a nap," but "He laid down the law."
If the subject is already at rest, you might "let it lie."
If a helping verb is involved, you need the past participle forms. "Lie" becomes "lain" and "lay" becomes "laid": "He had just lain down for a nap," and "His daughter had laid the backpack on the kitchen table."
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