The main objective of this study is to avoid the burning of palm waste and exploit it as an alternative material in strengthening gypsum, thus enhancing the mechanical, physical and thermal properties of gypsum, and making a new bio-composite material that is environmentally friendly, lightweight, low-cost, structurally sound and easy to manufacture, and thus used as a thermal insulator in environmentally friendly buildings. This is achieved by reaching the ideal mixture (gypsum/palm waste) in the manufacture of the bio-composite material, which helps in consuming less energy. Taking into account the mechanical properties required for each use. For that, mechanical, physical, and thermal characterization of bio-composites with different palm fiber sizes 0.08, 0.315, and 0.5 mm and varying ratios of mass 5, 10, 15, and 20% for each size and compared with gypsum. This characterization showed a relative decrease in mechanical properties in exchange for an improvement in thermal insulation because these new compounds have a thermal conductivity lower than that of gypsum and decrease with an increase in the size and mass ratios of the fibers. Bio-composites are less dense and absorb less water than gypsum. SEM images, EDS, and FT-IR chemical tests to analyze the results also supported the study. This study explores sustainable building materials and the benefits of using palm waste to improve insulation materials. The research results also drive innovation in environmentally friendly construction techniques.