Mail providers that use Yahoo services such as AT&T and AOL have the same requirements as Yahoo, and so the authentication portion of this article applies to users of these mail providers.

OAuth2 Authorization

OAuth2 is the default for accessing Yahoo provided services (and providers like AOL and AT&T). The provider (not Thunderbird) presents you first with their dialog to confirm your account name and password, followed by their dialog to authorize which data types Thunderbird will be permitted to use.

An access token sent from your provider (a string of characters, not your password) is then stored in Thunderbird's password store to allow future access to the server. Tokens eventually expire, at which time you must again provide your account information with password. If you do not know your password, then you must use your provider's account pages in a web browser to create a new password, often called a "password reset".

This authentication setting is automatically configured in Thunderbird Account Settings on first access for both sending and receiving email, and for accessing calendars and contacts in the respective settings of Thunderbird. OAuth2 also requires javascript and cookies, which are enabled by default in Thunderbird.

For more information see ...

Mail Settings

POP

Refer to Yahoo!'s help page for POP access settings and instructions for Yahoo Mail.

IMAP

Refer to Yahoo!'s help page for IMAP server settings for Yahoo Mail.

My sign-in attempt was prevented

If you get the Username or password invalid warning and the Sign-in attempt prevented email when you try to connect your Yahoo Mail with Thunderbird, Yahoo has blocked Thunderbird from connecting because it's a "less secure" non-Yahoo app. In Thunderbird below 68.5 you could enable an option to allow apps that use less secure sign-in in your Yahoo Account. See this Yahoo support page for instructions.
Update: please read section 'Important Changes to Authentication Method Notice' below.

In Thunderbird version 68.5 and up you can change the POP server to pop.mail.yahoo.com (port 995).

Important Changes to Authentication Method Notice

If you currently have a POP or IMAP mail account in Thunderbird and receive an email from Yahoo that says:
"We’ve noticed that you’re using non-Yahoo applications (such as third-party email,calendar, or contact applications) that may use a less secure sign-in method. To protect you and your data, Yahoo will no longer support the current sign-in functionality in your application starting on 20 October 2020. "

Check Thunderbird has cookies enabled.

1. Click Thunderbird app menu ☰ > Privacy & Security.
2. Tick checkbox Accept cookies from sites.

Update the 'Authentication Method' for the POP3 or IMAP mail account.

1. Click Thunderbird app menu ☰ > Account Settings
2. Click on the mail account name in the left sidebar for example nemo@thunderbird.net.
3. Bottom right: click on Edit outgoing server....
4. Set Authentication Method to OAuth2.
5. Click OK.
6. Click on Server Settings in the left sidebar for your mail account.
7. Set Authentication Method to OAuth2.
8. Click on OK.

Exit Thunderbird .
Wait a few moments for background process to complete.
Start Thunderbird.

Then there will be a prompt from your Yahoo ISP partner to login. This is done with a OAuth 2.0 key exchange in Thunderbird which will authenticate the Thunderbird client in future logins.

Import Yahoo!'s Contact List to Thunderbird

1. Open your Yahoo! Mail account.
2. On the right side of the screen (left if you are using the "classic mail"), select the Contacts icon. Your contact list will open.
3. At the top of the list, click the Actions menu.
4. In the menu, select Export....
5. Select Netscape/Thunderbird and click Export Now.
6. Save the yahoo_contacts.ldif file to your desktop or some other place where you can find it later.
7. Open Thunderbird.
8. Under Tools, select Import and then Address Books.
9. Select Text file (LDIF, .tab, .csv, .txt), then click Next.
10. Select the yahoo_contacts.ldif file that you previously saved.
11. Your Yahoo! contacts will be imported as a separate yahoo_contacts address book.

Calendar

To configure the Thunderbird calendar (Lightning) with your Yahoo! Calendar, follow the instructions at the page Sync Yahoo Calendar with Mozilla Lightning on the Yahoo! support site.