Cement production significantly contributes to greenhouse gas emissions and depletes limited natural resources. Sustainable methods are needed to mitigate the environmental impact, including carbon capture, alternative fuels, and supplementary cementitious materials. Recycling waste aggregates or processed cement can reduce the carbon footprint of cement production. This research investigates the mechanical recovery of residual material fines fraction generated during wood–cement particleboard manufacturing to create a new sustainable binder with unhydrated and hydrated cement particles. This approach could lead to the development of more environmentally friendly building materials. This study offers the application of the recovered binder and residual materials generated during wood–cement particleboard manufacturing to produce a new bio-based building material. The residual material fines fraction, consisting of partially hydrated and unhydrated cement particles and wood fibers, is processed by milling to break up the conglomerates. The resulting fines fraction is used as a binder in mortar samples tested for mechanical compressive strength. The developed binder was combined with different wood wool residual material streams and used as the filler material. Lightweight bio-based building material was created with a 245 kg/m3 density and thermal conductivity of 0.0796 W/(mK). The study highlights the potential of using residual resources to produce sustainable construction materials. © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2025.