Geofoam is manufactured into large lightweight blocks with only 1% of soil and rock density. They are used in various geotechnical engineering applications to replace conventional backfill material in case of retaining walls to lower the soil pressure acting on the wall or in case of the embankment to reduce vertical loads, control settlement, as fill above pipelines, trenches, tunnels and below slabs/beams at a foundation. In this study, an effort was made to understand the behaviour of EPS geofoam numerically through PLAXIS 2D, when placed behind an earth retaining structure (ERS), in reducing settlement upon strip loading. The backfill settlement profiles for each case without geofoam and with geofoam of different densities were compared for distances 0, 0.15, 0.225, and 0.3 m from the wall. The maximum settlement was observed just below the footing and the minimum at the far end. To assess the performance of the geofoam behind the wall for different arrangements and densities dimensional parameters settlement reduction ratio and bearing capacity ratios were found. The percentage settlement reduction was 44.51–72.6% based on the geofoam of three different densities, 11 kg/m3 (11G), 16 kg/m3 (16G), and 34 kg/m3 (34G). The study demonstrates that higher-density geofoam significantly improves the performance of the retaining wall by reducing settlement, highlighting its effectiveness in geotechnical applications where settlement control is crucial.