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Epoxy‐impregnated paper transformer bushings are prone to water absorption due to the presence of water‐attracting moieties in the cellulose chemical structure and epoxy resin, leading to moisture‐induced insulation defects. To understand the mechanism of moisture's impact on epoxy‐impregnated paper, this study developed a testing platform that integrated moisture diffusion, adsorption, and dielectric properties of insulating materials. Insulation specimens made of epoxy resin and epoxy‐impregnated paper were prepared and their water diffusion characteristics were investigated using the Fick diffusion model and the Langmuir model, respectively. The Guggenheim–Anderson–de Boer equation was used to examine the vacuum vapour adsorption characteristics of the materials, providing a theoretical foundation for examining the form of water present within them. The dielectric response of materials with varying moisture levels was then tested to study the effect of water on the dielectric spectrum curve. Using the Extended Derivative Method, the characteristic frequency reflecting the water content of the epoxy‐impregnated paper was extracted. The results demonstrate that 0.01‐Hz characteristic frequency provides superior accuracy for moisture assessment in epoxy resins compared to 50 Hz, and extracting and fitting the relaxation peak characteristic frequency in epoxy‐impregnated paper moisture evaluation yields higher accuracy than using tan δ at the power frequency. [ABSTRACT FROM AUTHOR]