Circular economy principles can be applied to the construction sector to reduce use of resources, energy consumption and wastes. Bio-based construction materials are particularly suitable to circular building design. Advantages of bio-based materials include: (1) a renewable supply chain, (2) often fast-growing, (3) recyclable or used as fertilisers/compost and (4) can sequester carbon. In this paper, the design of three circular bio-based wall panels is presented. The three panels were designed to be disassembled, and innovative bio-based materials, such as mycelium, sheep’s wool and cellulose were implemented in the walls. The wall assemblies were tested in a large environmental chamber to assess whether the panels achieved high insulating performances. Monitoring results showed that the three panels have excellent thermal properties. In parallel, life cycle assessment (LCA) of the bio-based construction materials applied in the three panels was undertaken to assess the sustainability and circularity of the selected materials. LCA results showed that some of the materials, such as sheep’s wool and flax, do have a low carbon footprint. However, there are uncertainties around the carbon footprint of other bio-based materials (e.g. fungi-based products), as information on the manufacturing process and associated emissions are not always available. This paper provides an overview of the applicability, advantages and challenges of innovative and sustainable technologies in buildings to achieve net-zero targets and to apply circular economy model of construction in buildings.