This species is found in open, mostly flat desert grasslands with scattered shrubs in the Sonoran and Chihuahuan regional deserts. The grasslands are usually a mixture of native grasses such as threeawn (Aristida), blue grama (Bouteloua), tobosa (Hilaria), and scattered shrubs such as mesquite (Prosopis), catclaw (Acacia), shinnery oak (Quercus havardii), cacti (Opuntia) and creosote bush (Larrea). However, these kangaroo rats disappear when invasive shrub cover exceeds 20%. Thus, their presence is an indicator of the health of desert grasslands (Krogh et al. 2002; Waser and Ayers 2003). Banner-tailed Kangaroo Rats occur in a variety of soil types and create conspicuous, low, rounded, circular burrows typically in open, flat grasslands or under the protection of shrubs. The mounds are constructed by cleaning out, repairing and modifying tunnels and require a substantial investment in energy resources by this species; requiring a minimum of several months to fully construct. This species will occasionally live in abandoned burrows of prairie dogs (Cynomys) or Ord's Kangaroo Rat (D. ordii) and may coexist with Southern Plains Woodrats (Neotoma micropus). A variety of invertebrates (e.g. spiders, cockroaches, scorpions) and other vertebrates (e.g. lizards, snakes, toads) will inhabit large mounds with this species. Their burrows will also provide nesting sites for burrowing owls (Athene cunicularia). The Banner-tailed Kangaroo Rat feeds mainly on seeds from a variety of grass, forb and shrub species, but they will also feed on green and succulent parts of plants, dried grass and insects. They have been observed climbing Mormon tea (Ephedra) and yucca (Yucca) to consume their flowers. 
This species is mostly nocturnal and is not known to hibernate or estivate, but they will stay in their burrows during rainy or cold weather patterns. Individuals are usually solitary and both sexes will defend their non-overlapping home ranges, except during the breeding season. Home ranges avereage 0.4-0.7 hecatares, but the majority of their activity occurs within 160 meters of their burrow. The breeding season of northern populations occurs from January through September, with a peak in April. Southern populations will breed from December through August, with peaks in December, June, and July. Females will usually have 1-3 litters per year with an average litter size of 2-3 offspring.

This species has a disjunct distribution. The northern portion of its range is from north-eastern Arizona, northern New Mexico, and far western Texas (USA), southward to northern Sonora and Chihuahua (Mexico) (Anderson 1972). The southern portion of its range is in central Mexico, primarily in Aguascalientes and San Luis Potosi states (Anderson 1972).

No conservation actions are known to be in place for this species.