Paper wasps, yellowjackets, and hornets all make paper nests, though the size, shape, and location of their nests differ. Paper wasps build umbrella-shaped wasp nests suspended underneath eaves and overhangs. Hornets construct large, football-shaped nests. Yellowjackets make their nests underground. In general, though, the process of constructing all wasp nests is the same.
Wasps are expert paper makers, capable of turning raw wood into sturdy paper homes. A wasp queen uses her mandibles to scrape bits of wood fiber from fences, logs, or even cardboard. She then breaks the wood fibers down in her mouth, using saliva and water to weaken them. The wasp flies to her chosen nest site with a mouth full of soft paper pulp.
Construction of the wasp nest begins with a suitable support – a window shutter, a tree branch, or a root in the case of subterranean nests. The queen adds her pulp to the support. As the wet cellulose fibers dry, they become a strong paper buttress from which she will suspend her nest.
The nest itself is comprised of hexagonal cells in which the young will develop. The queen protects the brood cells by building a paper envelope, or cover, around them. The nest expands as the colony grows in number, with new generations of workers constructing new cells as needed.
Old wasp nests degrade naturally over the winter months, so each spring new ones must be constructed. Wasps, yellowjackets, and hornets don't overwinter. Only the mated queens hibernate during the cold months, and these queens choose the nesting sites and begin the nest building process in spring.
Source: The Insects: An Outline of Entomology, P.J. Gullan and P.S. Cranston, 2008.