In pursuit of net-zero greenhouse gas emissions to combat climate change, implementing low embodied carbon building materials such as wood fiber insulation as key players. This study investigates the thermal and hygrothermal performance of bio-based wood fiber insulation, both as continuous and cavity insulation. The research employs an exhaustive simulation task and an environmental chamber test of a wood fiber insulation. Over 400 simulations were conducted to study the hygrothermal characteristics of bio-based wood fiber insulation in various building envelope configurations across four climate zones. Environmental chamber tests were conducted under controlled winter conditions representative of Climate Zone 5A (Chicago, IL) to complement the simulation results. The chamber tests focused on the hygrothermal performance of the wood fiber insulation and the sheathing board to assess the insulation’s ability to manage moisture in a cold climate. Simulation and environmental chamber test results were analyzed to evaluate the insulation’s consistency and efficacy across diverse climatic zones. Results show that with a proper moisture control strategy, both cavity and continuous wood fiber insulation can work properly in both new and retrofit constructions.