Abstract: An insulated building block system for use in building walls and other structures. Each full block has sidewalls and endwalls with a generally open interior and flat upper and lower surfaces. Two vertical ridges are provided along the interior of one sidewall, with a protrusion extending above the upper surface. The ridges are located such that an upper block arranged in staggered relationship to a block in a lower course will interlock with the lower block. Recesses are provided in the interior endwall surfaces to retain a thermal insulation panel against the interior sidewall surface opposite the ridges. Half blocks are also provided to fill spaces in wall end surfaces between staggered full blocks. The half blocks have open interiors for placement of insulation panels and include ridges for interlocking with protrusions on adjacent full blocks.