A very promising cellulose-based natural fibre that is suitable for use in the textile industry is peat fibre. This fibre is a by-product of peat excavation, purified by separating it from other components. In this study, the morphological, chemical and mechanical properties of peat fibres as well as flammability of peat-based knitted fabrics were analysed. The average diameter of the peat fibres is ~60 μm, but it varies in very wide ranges – 25–150 μm; however, the number of fibres with diameter more than 100 μm is very low. As the peat fibre contains a high amount of lignin, lignin amount in the mixed peat/cotton yarn is relatively high too. Lignin is responsible for enhanced flame retardancy; therefore, time to ignition of the peat knit is ~30% higher than that of the cotton knit. Consequently, peat fibre can be used in the knitted structure in order to significantly reduce its flammability. In order to increase the flame retardancy, the knits have been treated by flame retardant in various concentrations. It was found that around the burned hole on the peat knit, treated by very low concentration flame retardant, forms charred area and the knit stops to burn even if the flame source is not removed.