2020 updates by Cathy Bickel
Gerbils will instinctively build a nest to sleep and hide in. Without a nest, gerbils feel exposed and stressed. Nest-building promotes bonds between gerbils and is an enjoyable and stress-reducing activity. Provide your gerbil with fresh nesting materials at least once a week.
Do not give commercial "fluff" or cotton, or any type of cloth; the fibers can get wrapped around gerbils' toes. It can also cause intestinal blockage or other damage if they eat bits of it, just like a cat would get if it ate a tempting length of yarn.
Good nesting materials include torn-up toilet paper or paper towels, printer paper, junk mail shredded in your home shredder, paper-based commercial bedding materials like Eco-Bedding, a folded-up piece of paper and small boxes. Some gerbils also appreciate a small wooden house or coconut shell. Avoid plastic hideaways as they will be destroyed by chewing. Some gerbils, however, will only use a house as an outhouse. Experimentation is the only way to find out what your gerbils prefer.