[4][5] Although found throughout most parts of Australia, very little is known about its ecology due to the small size, nocturnal activity, and general elusiveness of most microbat species, making them difficult to study.

[5] The yellow-bellied sheath-tailed bat appears to be wide-ranging, occurring across most parts of eastern and northern Australia,[17] though in what densities remains uncertain due to the difficulties associated with capture and detection of the species.

[7][8] Much of the distribution understanding of this species has developed as a result of incidental sightings,[18][19] such as one record from central western Queensland that was taken from a mummified bat found on a barbed-wire fence.

[4][8] This species occupies most wooded habitats, including both wet and dry sclerophyll forest, mallee and Acacia shrubland, desert, and open woodland.

[21] However, they have been known to opportunistically use abandoned animal burrows and human structures, and roost under dry clay and rock, though generally only solitary bats have been observed to do this.

[6] Though no confirmatory studies have been carried out, yellow-bellied sheath-tailed bats may be migratory based on local records that show the species occurring only at specific times of year.

[22][23] Breeding receptivity in the yellow-bellied sheath-tailed bat begins in August when the right uterine horn increases in diameter, achieving maximum size in November.

[5][6] Though infrequently encountered, the conservation status of the yellow-bellied sheath-tailed bat is categorised as of least concern, because the species is both widespread and versatile in its habitat selection, thus is considered unlikely to decline rapidly.

[27] The main threats to conservation of the yellow-bellied sheath-tailed bat are habitat loss, particularly of old-growth trees, disturbance to roosting sites, and prey depletion or secondary poisoning as a result of pesticides and herbicides.