This species inhabits lowland tropical forest. It is not known from caves and small groups have been found roosting in hollow trees (Flannery 1995; Bonaccorso 1998). Three individuals were once found roosting inside a curled banana leaf (Flannery and Seri 1990).

Hipposideros muscinus is endemic to New Guinea. In Papua New Guinea it has been recorded from Central, Chimbu, Gulf, Sandaun, and Western Provinces. In the Papua Province, Indonesia it has been recorded from the Lorentz River in Fak-fak District (Flannery 1995; Bonaccorso 1998). It has been found from sea level to 750 m a.s.l., but is more commonly encountered at lower elevations. A recent survey in the Hindenburg Wall area of Western Province suggested the presence of this species as high as 2,400 m on the basis of acoustic records, but this may be a misattribution because it could not be distinguished reliably from H. wollastoni that is relatively common at mid-montane elevations (Armstrong et al. 2015). Assessing the distribution of H. muscinus using acoustic recorders is made difficult by a lack of information on the call of its enigmatic sister species H. semoni, and an overlap of characteristic call frequency around 90 kHz with H. wollastoni (K.N. Armstrong and K.P. Aplin unpublished data).

Protection of large areas of natural habitat is currently the best known way of preventing a decline in this species.