I recently installed new drywall around a window in my home and it looks like there is a gap between the window casing and the wall. I have attached pictures of the left side, right side, top and the entire window (sorry not the best quality, I only had a camera phone). I was wondering what goes in here before I install the window moulding? Let me know if you need anymore details. Thanks.

INSULATION. Its important to block out drafts saves heat. Take a putty knife cutt insulation to size and use the knife to stuff it in. Don't push it in to tight though because the window will be hard to open and close!

Thanks for your response... I already put insulation in there... I guess what I'm really asking is how do I close it up, do I just attach the wood for the casing or is there something else that goes on before?

Also, in addition to the insulation, should I also caulk the gap?

Did you make the new drywall stand proud of the old surface? Replacing drywall should give you the same surface you had before, how is this different. Looks to me that the casing is designed for a different wall thickness and now you need to cut a custom pice of dimensional lumber to fill the void. The casing should be perfectly flush with the drywall before your moulding goes up.

The old wall was wallpapered and had paneling attached on top. When I removed the paneling I figured it would be easier to replace the wall than to scrape off the wall paper and the wall was in pretty bad shape. I replaced with the same thickness drywall (1/2 inch), however where those gaps are there used to be pieces of paneling.

Like I said, cut some custom domensiona;l lumber strips and fill the void like a casing, paint to match window.

I had this same issue when I finished my basement. Ballergerb1 is correct. The box stores have 1x stock that is paint or stain grade. Find the closest width that exceeds the depth of the gap. Cut the pieces to length/ height and dry fit them in place. Mark where they meet the drywall with a pencil and rip them to that width. When you install them, flip them around and put the ripped edge against the window and leave the clean edge toward the room. Use shims if needed to keep the sides plumb and then nail in place. A bead of caulk will fill any gaps between the wood you install and the window. You can then use casing around the window to match the others in the room/home.