In the quest for sustainable construction solutions, this study explores the thermal insulation potential of sawdust as an eco-friendly material for building applications in hot-arid climates, with a focus on Iraq. The research evaluates the thermal behavior of sawdust when mixed with clay and glue, forming two different composite insulation materials. Laboratory experiments were conducted to measure thermal conductivity, with results compared against traditional insulators like Styrofoam. The sawdust-clay composite (20% sawdust + 80% clay) demonstrated a significantly lower thermal conductivity of 0.44 W/m K, outperforming the sawdust-glue mixture, which recorded 2.2 W/m K at its optimal ratio (80% sawdust + 20% glue). Experimental setups using three test rooms insulated with Styrofoam, sawdust-clay, and sawdust-glue materials were installed on the rooftop of a building in Kirkuk, Iraq, to assess energy efficiency under real climatic conditions. Over 22 days of testing under varying weather conditions (cloudy, rainy, and sunny), the sawdust-clay insulated room reduced power consumption by up to 37% compared to the uninsulated baseline. The sawdust-clay material maintained consistent insulation performance with negligible change in thermal conductivity, while the sawdust-glue composite exhibited a 63% increase in conductivity after prolonged exposure to fluctuating temperatures. These findings suggest that the sawdust-clay mixture is a viable, low-cost alternative for sustainable building insulation, contributing to energy savings and environmental preservation. This innovative approach addresses the dual challenge of managing wood waste and reducing the energy footprint of buildings in hot-arid regions. Future research could expand on the long-term durability and scalability of sawdust-based insulation in diverse climate zones.