Natural nests of the European ground squirrel (Spermophilus citellus) are constructed almost exclusively of fresh fescue (Festuca pseudovina: Poaceae). We performed laboratory experiments to understand the functional significance of preference of wild squirrels for nest material. We examined the factors contributing to nest quality by monitoring the construction and analyzing the composition of squirrel nests. As in the wild, squirrels showed strong preference for fescue during the laboratory tests and preferred fresh material to dry material. Because preference for fresh material was not expected, because high water content reduces insulation, we manipulated the moisture content of nests made from either fresh or dry fescue to determine how nest quality and moisture level contribute to insulation. We found that the insulation property of fresh grass nests was superior to nests constructed from dry grass only. Intracellular water in the nest material did not affect thermal conductance and insulation significantly. We concluded that fresh fescue provided a more flexible material that allows squirrels to construct nests with better insulation under both field and laboratory conditions.