A water heater including a tank, a cylindrical jacket surrounding the tank to provide an insulating space therebetween and a cover member mounted on top of the jacket to close off the top of the insulating space. An insulating wall is provided in the insulating space between the tank and the jacket. The insulating wall is comprised of a plastic envelope member and a wall of insulating material which has been foamed-in-place inside the envelope member. The envelope is constructed in such a way as to evenly distribute the foam material inside the envelope during the foamed-in-place operation.