When selecting materials for the interior walls of a shed, the best choice depends on various factors such as durability, installation ease, cost, and the intended use of the shed. Plywood is a popular option due to its robustness and straightforward installation process. It provides a smooth surface that can be either painted or stained, making it versatile for any décor, and it's relatively affordable. It's ideal for handling the rigors of workshop activities or general storage.

Another cost-effective option is Oriented Strand Board (OSB), which, while generally cheaper than plywood, still maintains good strength and can be left as is or painted, depending on your needs. For sheds that demand a more refined appearance, such as those used as home offices or studios, drywall is a suitable choice. It offers a smooth finish that's easy to paint, although it's less resistant to moisture and damage than other options.

For sheds in damp environments or used as garden sheds, Fiberglass Reinforced Panels (FRP) are excellent due to their durability and resistance to moisture. They are also easy to maintain but tend to be more costly compared to other materials. In spaces like tool sheds or workshops where easy access to tools is crucial, sections of pegboard can be invaluable. They are not recommended for entire walls due to their lack of insulation and structural strength but are useful when combined with more durable materials like plywood.

For a more traditional or cozy feel, tongue and groove wood is an attractive option, especially for sheds used as hobby rooms or retreats. This material provides a beautiful finish but is typically more expensive and labor-intensive to install. Your final decision on wall materials should align with how the shed will be used, your budgetary constraints, and the climatic conditions of your location.