Sandwich composite panel for heat insulation application were fabricated from two types of agricultural biomass waste, the oil palm empty fruit bunch and spent mushroom substrate. These agricultural biomasses are abundant, renewable, and without proper disposal management, might cause massive environmental pollution. This study investigated the effect of fibrillation degree on EFB fiber through the morphology modification to enhance the properties and thermal characteristic of the sandwich composite panel. Fibrillation is a physical changes that occurred on the surface and internal structure of fiber after undergo excessive physical modification by using refiner machine. Higher fibrillation degree could be achieve by narrowing the space area between two disks of refiner which also known as refining gap. In this research, a composite panel was developed from (SMS) and (EFB) fiber via sandwich hot pressing method. One composite sample using raw EFB fiber and three composite sample at fibrillation degree 191.40%, 211.70% and 271.68% were made at density 0.8 g/cm3. Based on result, the morphological structure of EFB fiber improved in term of formation of small fibril formation, larger surface area, optimum fiber length, optimum fiber diameter and better fiber distribution in composite panel. The mechanical properties of composite was obtained at range 2.77–7.21 MPa for tensile strength, 16.61–18.59 MPa for flexural strength, 2.06–3.18 MPa for internal bond and 4.35–15.79 kJ/m2 for impact strength. For physical properties, value of water absorption and thickness swelling were obtained at range 90.34–142.61% and 18.01–44.80%, respectively. Last but not least, the thermal conductivity value of sandwich composite was obtained at range 0.234–0.282 W/m.K. Overall result found that increasing fibrillation degree on EFB fiber at 211.70% able to contribute in improving the mechanical properties, physical properties and thermal characteristic of sandwich composite panel. This research finding suggested that enhancement of fiber morphology using fibrillation degree approach is considered as an alternative eco-friendly method that could be implemented to improve the properties and thermal characteristic of sandwich composite panel.