It has a body adapted to hang by its limbs; the large curved claws help the sloth to keep a strong grip on tree branches.

The pygmy three-toed sloth is found exclusively in the red mangroves of Isla Escudo de Veraguas, restricted to an area of 4.3 square kilometres (1.7 sq mi).

The pygmy three-toed sloth was first described by Robert P. Anderson of the University of Kansas and Charles O. Handley Jr., of the Smithsonian Institution in 2001.

The researchers noted that the three-toed sloths found on Isla Escudo de Veraguas were significantly smaller than those that occur on the nearby outer islands of Bocas del Toro Province.

Hence, they considered the three-toed sloths in Isla Escudo de Veraguas to be an independent species and formally described it from the skin and skull of an adult female.

[6] According to molecular phylogenetic analysis, Bradypodidae nests with Megalonychidae, Megatheriidae and Nothrotheriidae in the sloth superfamily Megatherioidea.

Many of the features found in pygmy sloths are thought to be indicative of a relatively rapid evolution of a new species in an isolated, island habitat.

The algae is generally more noticeable on the top of their head and neck, dorsal portions of the forelimbs, and upper backside.

[14] The pygmy three-toed sloth is unique in that it is found exclusively in the red mangroves of Isla Escudo de Veraguas; the island has a small area of approximately 4.3 square kilometres (1.7 sq mi).

[1] Threats to the sloth's survival include timber harvesting and human settlement, that might lead to habitat degradation.

[17] After several observations, the corpses of the pygmy three-toed sloth were found to be unharmed physically, suggesting that predation is not a major threat.

[20] The smaller size of pygmy sloths reduces their energy requirements for survival and reproduction, making them an apparent example of insular dwarfism.