If a wizard has blinked out and sees a spell being cast in the material plane, can he counter that spell with his reaction? Will their magic be able to act across the planes?
My instinct is to say no, however magic is one of the things known to act across planes under the right circumstances.
Counterspell states that you attempt to interrupt a creature that you can see casting a spell.
While Blink allows you to see the creature casting the spell, Blink requires that "You can only affect and be affected by creatures on the Ethereal Plane".
Counterspell does not target spells being cast. It targets creatures that are casting spells.
Because you are influencing the person, not the spell directly, you cannot Counterspell a spell being cast while you are Blinked in the Ethereal Realm.
The answer is right there in the description of blink:
While on the Ethereal Plane [...] You can only affect and be affected by other creatures on the Ethereal Plane.
Counterspell has a Target-type of "A creature you can see within 60' who is casting a spell." You cannot affect creatures that are not on the same plane as you.
There's further detail on how magic interacts with being on the Ethereal Plane in the DMG (p. 48) in the description of the Border Ethereal:
Normally, creatures in the Border Ethereal can’t attack creatures on the overlapped plane, and vice versa. A traveler on the Ethereal Plane is invisible and utterly silent to someone on the overlapped plane, and solid objects on the overlapped plane don’t hamper the movement of a creature in the Border Ethereal. The exceptions are certain magical effects (including anything made of magical force) and living beings.
The phrasing here makes it pretty clear that most magical effects cannot cross planar boundaries. Pairing this with the standing 'Spells do what they say they do' interpretation would tell us this: Unless a spell produces something made of magical force, or explicitly says that it works across planes (like sending), then it cannot cross planes.
