<p>The increasing demand for sustainable construction materials has motivated research on recycled fiber (RF) insulation derived from textile and banner waste. In this study, RF insulation panels were fabricated by thermal compression without chemical binders at two target densities (150 and 200 kg·m⁻³). Their fundamental thermophysical properties—including bulk density, porosity, thermal conductivity, and vapor resistance—were experimentally characterized. The measured thermal conductivity ranged from 0.037 W·m⁻¹·K⁻¹ to 0.062 W·m⁻¹·K⁻¹, depending on fiber type and density, confirming the sensitivity of thermal transport to moisture-related sorption behavior. Long-term hygrothermal simulations using WUFI (Wärme Und Feuchte Instationär) were conducted to evaluate moisture accumulation, mold risk, and heat transfer dynamics under the hot-humid summers and cold-dry winters of Seoul, South Korea. Results revealed that RF insulation exhibited strong moisture buffering capacity, with mold indices decreasing below critical thresholds within three years. Compared with expanded polystyrene (EPS), RF insulation required a minimum thickness of 0.15 m to achieve equivalent thermal resistance. To further enhance sustainability, a hybrid wall assembly combining cross-laminated timber (CLT) with RF insulation (CLT_RF) was proposed. Life-cycle analysis indicated a reduction of approximately 17.47 tCO₂-eq in embodied carbon compared to reinforced concrete. Among the tested samples, mixed-fiber insulation (M40) achieved the best balance of thermal performance, hygrothermal safety, and environmental benefits. This work highlights the potential of recycled fiber insulation as a thermophysically reliable and environmentally viable material for low-carbon building envelopes.</p>