Cabassous tatouay inhabits tropical and subtropical lowland and submontane forests, and edge habitats (Redford and Eisenberg 1992), including occasionally agricultural areas (Mikich and Bernils 2004, Ubaid et al. 2010). It is broadly associated with the Atlantic Forest and Cerrado biomes and the transition to Pantanal and Caatinga (in the north) and Mesopotamian grasslands (in the south). Although recorded in open biomes, this species seems to prefer more humid areas as its presence in the Caatinga, Cerrado, and Uruguayan savannas is strongly associated with montane and xeromorphic forests (González and Lanfranco 2012, Queirolo 2016, Feijó and Anacleto 2021).  

Reproduction is unknown in the wild other than that a single young is born (González 2001). Matos et al. (2023) documented the growth and development of a neonate received at an animal rescue center in Brazil. The species is highly fossorial and largely insectivorous, with food (especially ants and termites) detected by smell (Wetzel et al. 2008).

This armadillo species is broadly associated with the Atlantic Forest, Pantanal and Cerrado regions of eastern and central Brazil (Feijó and Anacleto 2021, Desbiez et al. 2022, Rocha et al. 2022), north-eastern Uruguay (Ameneiros et al. 2015, Queirolo 2016, Villalba-Macías et al. 2019), north-eastern Argentina (Vizcaíno et al. 2006, Conil and Nigro 2012) and the eastern Oriental region of Paraguay (Smith and Ríos 2018, Smith et al. 2023). Records from Buenos Aires Province, Argentina are erroneous (Abba and Vizcaíno 2008). The species has also been recorded in montane evergreen forests (Brejos de Altitude) in northeastern Brazil (Feijó and Langguth 2013).

This species is present in many protected areas throughout its range (e.g., Bertrand and Soares 2018, Smith and Ríos 2018, Monteiro et al. 2019, SIB 2024). It is considered a conservation priority species in Uruguay (González et al. 2013) and is listed in CITES Appendix III (Uruguay).