A thermally-insulating composite material with co-shrinkage in the form of an insulating material formed by the inclusion of microballoons in a matrix material such that the microballoons and the matrix material exhibit co-shrinkage upon processing. The thermally-insulating composite material can be formed by a variety of microballoon-matrix material combinations such as polymer microballoons in a preceramic matrix material. The matrix materials generally contain fine rigid fillers.