The development of sustainable insulation materials plays a crucial role in creating energy-efficient and environmentally responsible buildings. This study investigates eco-friendly composite materials based on plaster and wood shavings for insulation purposes. Incorporating wood shavings into plaster improves thermal insulation and mechanical behavior by enhancing porosity, reducing density, and improving bonding. As the wood shaving content increases from 5% to 15%, the thermal conductivity decreases from 0.252 W/mK to 0.099 W/mK, reflecting superior insulating performance. Concurrently, thermal resistance rises, showcasing enhanced insulation. The material also demonstrates increased flexibility, with the Young’s modulus decreasing at higher wood shaving proportions. Numerical simulations confirm these observations, indicating a 12 K temperature drop for composites with 15% wood shavings compared to a 6 K drop for pure plaster. This study suggests that an insulation thickness of 6–7 cm for the 15% composite strikes the optimal balance between performance and cost-efficiency. The findings underscore the potential of wood shavings to significantly enhance the thermal efficiency and mechanical adaptability of plaster composites, promoting sustainable and effective building insulation solutions.