Cardiff Council has teamed up with Excel Building Solutions to use waste generated by households for insulation.
The new social housing scheme has been developed by the council to meet high levels of sustainability with recycled paper collected from 48 households.
Excel Building Solutions director Andy Izod said: "The agreement for the council to utilise recycled newspaper collected from homes throughout the local authority has many direct benefits. These include meeting its own recycling targets."
Tests undertaken showed the material to be extremely fire resistant, free of toxic substances and to reduce household CO2 emissions.
Izod added: "Most importantly, when Warmcel insulation is eventually removed from a building, it can be recycled again or disposed of safely, without creating toxic waste or biodegradability problems."