Waste from the production of paper and pulp, known as paper sludge, is typically dumped in landfills creating huge environmental problems. Wastepaper is an eco-friendly low-cost cellulose-rich material that can be utilized as a thermal insulation material in the building to achieve sustainability goals. In this study, the wastepaper pulp termed cellulose and aerogel blanket was utilized to develop an efficient insulation system for modular housing. Various thicknesses of the wastepaper pulp as an insulation layer were used to study the influence of insulation layer thickness on thermal resistance. Initially, the cellulose is studied and then a layer of aerogel blanket is added to enhance the performance of the insulation system. It was concluded that the proposed composite insulation could be utilized as a suitable insulation as it not only enhances the overall thermal performance of the building but also results in a sustainable use of wastepaper. Furthermore, owing to its lightweight nature, the use of wastepaper pulp and aerogel blanket as thermal insulation is also feasible for transporting modular housing to remote regions in northern Canada.