BASEMENT INTERIOR WALL INSULATION
Many homes do not have floor or wall basement insulation, which is a common cause of condensation and thermal problems, namely in cold and moderate climates.
And these are the key roles of basement insulation: 1) solving condensation problems and 2) contribute to a warmer basement.
Be aware anyway: basement wall insulation doesn't solve structural moisture problems. Basement wall insulation contributes to elliminate cold surfaces, where condensation can occur, but it can't elliminate structural sources of moisture.
The most important function of basement insulation is to cut energy costs, in cold and moderate climates. Without proper levels of insulation, heat will migrate through the construction materials, during the cold weather; or the reverse, in hot regions...
When not to insulate the interior of basement walls
You should not insulate your basement walls unless your basement is dry. If there is signs of water, if you have drainage problems outdoors, if your foundation walls are not properly sealed and waterproofed, do not insulate your basement. Fix its problems first.
If there is water seeping through the walls and signs of moisture, do not insulate your basement. Mold, mildew and condensation will be aggravated.
Also do not insulate your basement without sealing it properly.
Cracks in the walls and holes and gaps in service penetrations or in the sills and back and deck floor should be properly sealed before insulation.
Traditional methods of interior basement insulation
Builders use to insulate basement walls by building a framed wall against the foundation and by filling it with fiberglass batts; they then cover the frame and the batts with drywall.
This method should only be used in very dry basements, without moisture and water condensation problems, and requires the use of un-faced insulation.
Do not forget this last detail. Moisture can travel from outdoors in, but also from indoor out, and that makes unfaced batts important, to give moisture an opportunity to escape.
Insulating the basement walls with Polystyrene Foams
Anyway, you should avoid fiberglass batts if there is significant risks of infiltration of moist indoor air in the walls (and risks are very real in most homes). That’s a direct recipe for mold and condensation problems.
There is a better choice than fiberglass batts: sheets of polystyrene (XLS) foam, attached to the foundation walls. Like fiberglass batts, XLS foam needs also to be protected with drywall (or other covering, like cement tile backer board; cement board is more expensive but is extremely mold-unfriendly, contrary to drywall).
Install at least 2 inches of extruded polystyrene, to get an insulation value of R-10. To achieve a better insulation (which is highly recommended in colder climates) you can add fiberglass batts to the polystyrene sheets (always keeping the foam board against the wall). To that effect you may use 1x3 vertical furring strips to hold the XPS in place and to provide a base for attaching the drywall.
Also hold the bottom end of the drywall one inch above the floor, to prevent water ground wicking.
Stone and concrete foundation basement walls
If you have stone-rubble masonry foundation walls, use sprayed polyurethane instead of fiberglass or extruded polystyrene. The foam is sprayed between and behind a frame wall, built against the foundation for the effect.
This method requires professional application. See for more technical details: OEE Basement insulation methods