Space heating accounts for approximately 60% of residential energy use in Canada. Minimizing envelope heat losses is one approach to reducing this percentage. Preliminary research investigated the energy-saving potential of an innovative design, referred to as Nested Thermal Envelope Design (NTED(TM)). The concept involves one insulated building inside another with dual thermal zones. Conservative modeling results from this work showed heating energy reductions of 74%. This research developed a new NTED(TM) simulation model to provide increased accuracy and gain a more complete understanding of the potential heating energy savings. The working performance was also investigated by modeling occupied-building operation. The resulting model has shown that the NTED(TM) design yields savings of 85% relative to a benchmark R-2000 building. These results improve on the preliminary values and reinforce the merit of the design as a means of achieving significant reductions in residential energy use.