This research investigates an eco-friendly method for sustainable construction by incorporating bio-based additives into building materials. Specifically, it focuses on compressed earth blocks (CEBs) reinforced with powdered apricot nut shells (PANS), a locally available agricultural by-product. Local soil was blended with varying PANS concentrations (0–4 wt%) to fabricate bio-composite blocks, which were then evaluated for their thermal performance using the Hot Disk transient plane source method. Thermal conductivity and diffusivity were measured to assess the insulation effectiveness of the materials. The experimental results revealed that increasing the PANS content led to a consistent reduction in both thermal conductivity and thermal diffusivity, indicating improved heat retention capacity. This behavior was attributed to the microstructural role of PANS particles, which generate microscopic air-filled voids within the matrix. These voids act as thermal barriers that impede heat flow through the material, thereby enhancing its insulating performance. Microstructural analysis using optical and scanning electron microscopy supported these findings, showing a homogeneous distribution of PANS and increased porosity. Consequently, the integration of PANS into CEBs contributes to the development of lightweight, thermally efficient, and environmentally responsible materials. The proposed bio-composite presents a promising solution for sustainable and energy-efficient construction, particularly suited for semi-arid regions such as Morocco, where passive cooling and thermal comfort are critical concerns.