This study aims to investigate the applicability of carboxymethyl cellulose (CMC) as a binder in insulating panels made from polyester textile waste (PTW), which is the most produced textile waste worldwide. This combination addresses the pressing need to recycle a widely manufactured material while introducing CMC as an environmentally friendly solution for elaborating panels with excellent thermal insulation and fire resistance. The composite panels were manufactured using compression molding process. The resulting thermal insulation panels demonstrate excellent thermal conductivity values, ranging from 0.0499 to 0.0514 W/m.K, comparable to established insulation materials. Panels with increased CMC content show remarkable mechanical strength, with compressive strengths of 217 kPa and 351 kPa for samples S4 and S5, respectively, and a flexural strength of 1.58 MPa for sample S5. This emphasizes that CMC as a binder helps distribute stresses more evenly across the composite, leading to higher strength and stiffness. Furthermore, employing CMC in the composite preparation confers exceptional resistance to flame propagation, namely, samples S4 and S5 exhibited immediate self-extinguishing properties and resistance to flame propagation. Accordingly, the mechanism behind CMC ability to resist flame propagation was investigated. Despite the composite's remarkable characteristics, its water sensitivity remains a disadvantage. Therefore, this shortcoming has been addressed highlighting several strategies that can be employed to mitigate CMC sensitivity to water including applying a waterproof coating to improve the composite humidity and water resistance increasing its overall durability.