Sheathing generally serves as a secondary weather barrier behind the exterior finish. It can also be the primary substrate for attaching the finish layer, and often provides shear diagonal bracing for the structure.

The most common sheathing materials for residential and light commercial construction are plywood and oriented-strand board (OSB). Plywood requires trees of a diameter large enough for veneers to be peeled off as the cylindrical core is turned on a lathe. OSB can be manufactured from fast-growing trees of relatively low commercial value, and uses a higher percentage of the tree. OSB sheathing and wood I-joist framing, used together, can reduce wood requirements dramatically while providing superior structural integrity.

Most OSB and plywood uses phenol-formaldehyde (PF) adhesive that give off-gasses less formaldehyde than the urea-formaldehyde (UF) commonly used in interior particleboard and paneling. Some OSB uses primarily a polyurethane-type (MDI) resin for its adhesive; this OSB emits no formaldehyde but is more toxic in its uncured state, placing factory workers at risk.

Recycled-content sheathing is available in various types. A sandwich material with aluminum foil facings over recycled paperboard is available that meets most wind load requirements and costs less than OSB. Exterior gypsum sheathing, typically made with recycled paper facings, is often used on commercial buildings and is particularly good under stucco for houses. Some exterior gypsum sheathing products use fiberglass facings or integral fibers that do not support mold growth.