The coypu lives in rainforests, temperate deciduous forests, grasslands, specifically in swamps and marshes and near the banks of lakes, streams, and rivers. Considered terrestrial, however it actually spends most of its time in the water, being an excellent swimmer and diver. The coypu lives in burrows that are built in and around the water. It is especially fond of areas with abundant vegetation along the banks. The coypu normally prefers freshwater, but it will inhabit brackish and saltwater (such as the population of the Chonos Archipelago in Chile).

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