This article is from the Model Rockets FAQ, by Wolfram von Kiparski with numerous contributions by others.
From: email@example.com (Jack Hagerty)
Just go down to your local building supply store and get a bale of
cellulose wall insulation. This is just shredded newspaper treated in
the same fire supressant [as Estes recovery wadding]. A $5 bag will give
you enough wadding to last years!
From: firstname.lastname@example.org (J A Stephen Viggiano)
In order to avoid fallout, you might want to put the engine in *before*
the [cellulose] wadding, or, for smaller rockets, a sheet or two of
regular wadding underneath the fluffy stuff.
Wayne Anthony uses cabbage leaves (you get more leaves per head [than
lettuce], and they seem to be a little tougher than lettuce), and I've
heard of people using grass.
From: email@example.com (Buzz McDermott)
I use acoustic speaker insulation. I costs #3 - $5 per bag at Radio
Shack. It's reusable, and one bag generally lasts me for dozens of
flights. [Editor's note: This material is not necessarilly bio-degadable
or environment friendy. Do not use this type of recovery wadding at any
field where remnants might be ingested by live animals. It will kill
them. Also, consider tethering fiberglass to shock line to prevent