The Night Armour is a wearable Magic Armor, often paired up with a Dark Sword. It costs 5 Nightmare Fuel and 3 Papyrus to craft. It is one of Maxwell's starting items.
It has 750 durability and absorbs 95% of physical damage. The Night Armour drains Sanity by 10/min while worn and decreases Sanity by 10% of total damage taken (not only absorbed by the armor).

Example: If player wearing Night Armour is hit by Spider Queen (damage 80), then

• 80 0.95 = 76 damage is taken by Night Armour.
  
• 80 76 = 4 damage is taken by the player's Health.
  
• The player's Sanity will be decreased by 80 0.1 = 8.

The Night Armour was added in the Insanity update.
Because the crafting of the Night Armour needs only 3 papyrus (paper), it is possible that the Night Armour is actually just some paper and the player just imagines it to be some kind of armour because of their insanity.
When paired with the Shelmet, the player is able to absorb 99.5% of incoming damage, enough to survive a gunpowder explosion and take just 1 point of damage to health and 20 to sanity.
Wickerbottom states the armor transfers the damage into another dimension.
While wearing the armor and walking, you can sometimes hear a slight warping sound.