With some limited exceptions, drywall or sheet rock itself is not an asbestos-containing product. Health hazards from asbestos exposure came from handling and using asbestos-containing joint compound to finish the seams between sheets of drywall. Joint compound manufacturers used asbestos to keep the compound from cracking when it dried. Even though other materials were available to serve this same purpose, asbestos was the cheaper alternative. Joint compound manufacturers continued to incorporate asbestos into joint compound products well into the late 1970s, and these manufacturers failed to warn that it could cause deadly diseases, including mesothelioma and lung cancer.

Asbestos is hazardous to human health if it is respirable and in any form that it is dry and dusty and capable of entering the body through the mouth or nose. Joint compound is particularly dangerous in four steps of the drywall finishing process: (1) setup; (2) mixing; (3) sanding; and (4) clean up. A tremendous amount of dust is created as the joint compound moves from a dry form to its mixture with water. It also becomes airborne and creates dust when it is sanded and swept. Ready mix joint compound, which comes pre-mixed, is equally as dangerous as its dry counterpart during the sanding and clean-up phases.

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Dry mix asbestos joint compound (mud) was sold in paper bags or in 1 and 5 pound cardboard boxes. It was typical for the paper packaging to tear, allowing asbestos-containing powder to spill out.
In order to create a paste for application to the seams of drywall, water was added to dry asbestos joint compound. Drywaller's poured the dry powder into a bucket, added water, and mixed it with a stick or an auger-type tool on the end of a drill.
The action of pouring and stirring dry joint compound released asbestos fibers into the air. A worker's face was generally within a few feet of the dusty conditions, placing him in the heart of the most dangerous breathing zone.
When the dry mix asbestos joint compound was mixed thoroughly with water, it was applied to the seams in-between two pieces of drywall.
When water was added to the dry mix, it turned into a paste with the same consistency as ready-mix joint compound (mud). Ready-mix asbestos mud was applied to drywall seams and used in the same fashion as dry joint compound.
"Mudding" - In order to fill the seam or gap betweem two sheets of drywall, asbestos mud was applied to drywall seams. As many as three or more layers of joint compound (mud) were applied and sanded. The end product produced a smooth, continuous wall.
Drywall Tape
Before the asbestos mud dried, a strip of drywall tape was applied to the top of the wet mud and covered with another thin layer of mud. When this layer dried, it was sanded and ready for another layer of mud.
Asbestos joint compound was sanded with a hand-held sanding block or a pole sander, if the work was conducted overhead. Hand sanding required the worker to be no further than an arm's length away from the wall, where a lot of dust was generated.
Overhead or pole sanding was equally as dangerous, because gravity caused the asbestos-laden dust to fall down onto the worker's head.
During the drywall finishing process, nails were also covered with mud. The nail was over-driven slightly below the surface of the drywall to create a dimple, which was then covered with asbestos mud. 
After the first coat of asbestos mud was dry and sanded, three or four additional coats of mud were applied to drywall seams with progressively larger mudding knives.
Additional sanding took place every time a layer of asbestos joint compound was applied to drywall seams.  After each layer dried, it was sanded, and more asbestos was released into the breathing zone of the worker.
After three or four coats of asbestos joint compound are applied and sanded, the wall is ready for primer and paint. 
Since drywall must be dust-free and clean before painting, excess asbestos mud was brushed off walls and ceilings with a rag or brush. The clean-up of excess dust caused asbestos to become airborne.
Sweeping excess dust from mixing, sanding and cleaning the drywall also caused asbestos to become airborne and inhaled.