Eupetaurus cinereus is currently known to live only in caves and crevices on steep cliffs in the dry conifer forest zone of northern Pakistan. Historically this region was well forested with blue pine (Pinus wallichiana), chilgoza pine (P. gerardiana), juniper (Juniperus sp.), and scattered deodar cedar, spruce and fir in higher and moister side valleys. The species is restricted in this region to between 2,400 and 4,800 m in elevation, as below this minimum there is only scattered dry scrub or arid rock desert and above this maximum is the alpine zone (Zahler and Woods 1997, Pal et al. 2019). It is strictly nocturnal, and dietary analysis suggests that it is highly dependent upon pine needles in its diet (Zahler and Khan 2003). The species nests in the rocky cliffs and the nest looks like a flat bowl and is built with bark, branches and grasses (Oshida et al. 2005). Unlike other giant flying squirrels, this species was observed to make glides of just 5-10-20 m long (Dinets 2011).

The species was originally known from a few specimens collected in northern Pakistan, mostly in the portion of Kashmir currently under Pakistani control (now known as Gilgit-Baltistan Province) and from northern Sikkim, India (Nowak 1999). The range possibly extends to China (Agrawal and Chakraborty 1979, Roberts 1977). Corbet and Hill (1992) report that two skins have been collected from Yunnan, however the species is not reported from China by Smith and Xie (2008). The presence of the species in Sikkim, India as reported by Agarwal and Chakraborty (1970) is based on a single skin. However, due to the lack of osteological and other distinguishing characteristics of the species, and the lack of subsequent records from Sikkim, the distribution of the species in Sikkim is doubtful. The species is known to be found across Diamer District in Gilgit-Baltistan and in some parts of the bordering districts. A single animal was found in the Napura-Basin Valley and Markhor Conservancy area (Pakistan) in 2014 (Din et al. 2015). Evidence of the species was found and individuals were sighted in the Shounther Valley, a district of Azad Jammu and Kashmir, further east than the species’ range was previously believed to extend (Qamar et al. 2012). The species was even recorded from Upper  Bhagirathi  Basin, Uttarakhand, Western Himalaya (Pal et al. 2019). The species has even been recorded from the Upper Bhagirathi  Basin, Uttarakhand, Western Himalaya (Pal et al. 2018).

In Pakistan, habitat destruction is the most immediate threat to the survival of the woolly flying squirrel. The Wildlife Conservation Society has launched a community conservation initiative. This project is aimed at helping local communities protect the high mountain pine forest ecosystem that the woolly flying squirrel depends upon for its survival. Community based conservation schemes are being implemented in Gilgit-Baltistan, and have resulted in a considerable reduction to the rate at which habitat is being lost in that region (Din et al. 2015). The species is included in the Schedule II (Part II) of the Indian Wildlife (Protection) Act, 1972. Surveys and monitoring are recommended for this species (Molur et al. 2005).