Walls for your diorama can be made out of a number of things- cardboard, matte board, wood, styrofoam- but I tend to use foam core.  Foam core is inexpensive and light weight, but stiff and easy to cut and work with.  (WARNING: it's not paintable.  When it gets wet, foam core tends to warp and curl. I found this out the hard way!!)
The easiest way to start a room is to figure out your approximate dimensions, then pin together the foam core or cardboard using T shaped pins.  I usually use 18x30 inch pieces of foam core as a sort of standard size room.  If you want the room smaller, cut the pieces to the size you want after first putting in some furniture and seeing how it looks.  This way, you can decide how big you want it and audition your wallpapers.  It's always easier to start bigger and shrink it down than have to add pieces back in.
If you want a larger area than 30 inches, you can use larger pieces of foam core or cardboard, or tape two pieces together using packaging tape.  You must make sure the packaging tape lies perfectly flat.  It will be covered by whatever you put on the walls, but bubbles and wrinkles may show through.
At this point hopefully you will  have something in mind to cover you wall with.

I love wallpapers because you can define the look of a room so easily with them.  I use them in almost all of my dioramas.  They are easy to find and inexpensive if you go the garage sales or thrift stores.  (If you don't, ask friends and family if anyone has some extra wallpaper with small patterns- you will be amazed how many people have some stashed in the basement and attic!)  Most rolls run fifty cents or a dollar.

(Quick wallpaper story: my daughter and I stopped into a wallpaper place that was going out of business and found that they had quit individually pricing the paper and it was now all you could fit into a box for $5.00.  Most of the wallpaper boxes would hold 8 to 10 rolls, but my daughter found me one that was a little larger and I managed to stuff in 24 rolls!  I took it to the front to see if the man at the cash register would charge me extra, but he just laughed and charged me the five dollars.  Of course, neither my daughter of I could lift it so we had to drag it to the car.  We didn't mind, since we had gotten it at 20 cents per roll!)

You can get wallpaper that looks like almost anything- stucco walls, tile, floral prints, miniature wall murals.  The choices are endless. I now have a collection of about 50 or 60 rolls and have used many of them.  I used nine different wallpapers in the Big Doll House and seven in the Grandville Library Display. (My daughter told me I had to give her credit here since she did most of the wallpapering in both those projects.) There are a number of papers I have bought for their texture as well as their color. These are wonderful for walls and buildings in outside settings, or rough plaster walls in more primitive rooms.

To see if the proportions are right when picking out a wallpaper, look for small patterns and photograph it with a Barbie standing in front of it before using it.
I have often planned on using a wallpaper for a particular room, only to find that it doesn't quite work. Now, to make sure the paper fits the scene I set up bare walls, put in some of the furniture, then "audition" various wallpapers by  draping part of the roll over one wall to see the effect. (If you look at the Failed Dining Room you will see that the wallpaper is not attached to the wall.) I then photograph it to see how it is going to look.  This seems like an extra step, but it is immensely helpful to do this, because many of the papers you may use will look quite different in a photograph.  When I was photographing the Staircase to see how it would look with different papers, some of my favorites didn't photograph well.
In the photos that you take, you will see if the paper is too busy or too bright or the colors are a little off.  Interestingly, you will lose some of the detail in the wallpapers.  This can be to your advantage.  When I was setting up the Antique Booth I noticed in the photos that you really couldn't see the small details in the wallpaper clearly, so I saved myself some time by using the wallpaper sideways all the way around the booth rather than cutting and gluing individual pieces. In the Black and White Room, the gray wallpaper has a large pattern. You can barely see it in one photo if you look for it.

If you use wallpaper, the best way I have found to attach it is spray glue.  Take the disassembled walls outside or into a work area, and spread out some newspapers because you will get some overspray.  Pre-cut your wallpaper to a little larger than the dimensions you need and make sure you have the patterns on the wallpaper line up, just as you would in a real room.  Lay out the foam core and spray the glue evenly, but thickly, across the entire piece.  Then quickly put the papers in place.  Don't rush too much, but you should work quickly because for the first four or five minutes the paper can still be removed and repositioned. That way if you don't line it up correctly, you can try again.   You should line the paper up and press it down a little at a time. Though you can do this part by yourself, I have found it goes a lot easier if I have someone else who can hold the top of the paper while I start at the bottom and press it down, working my way up to the top.  When you have it down, take a rag and, starting from the center, press down on the paper and push toward the edges till it all lies flat and all bubbles are out. Then line up the pattern on the next piece and repeat the process.  I usually cut the pieces longer than I need, then trim off the top and bottom with an exacto blade or box cutter when the wall is completely papered.
Altogether, this is a very quick and easy process.  You will find that some wallpapers stick better than others depending on what they are made of, how much glue you sprayed on, and what kind of glue was already on the wallpaper to start with.  Some wallpapers are simply easier to work with as well, depending on thickness, texture, etc.  Unfortunately, you have to figure this out by trial and error.
Contact paper with a small pattern can also be used as wallpaper, but keep in mind that it may reflect light differently when photographed.

I sometimes use other things besides foam core.  I've seen several dioramas done using straw or bamboo place mats to suggest tropical settings like those below.  To do this, simply attach the place mats to cardboard or foam core either with clips at the top, if they won't show in the photos, or by gluing or pinning it. (The floor here is yet another of my 20 cent wallpapers.) 

I've also seen foam core or cardboard used with scrapbooking paper glued to it.  Brick looking paper is one I've seen a lot.

Fabric can also be used, but I haven't found many ways of gluing it that don't make it look lumpy, so it is best pinned tightly to styrofoam walls.

For paneled walls, you can find floor mats with narrow bamboo slats that look like different types of paneling.  (See Flooring to see pics of the mats I use.) These can double as wooden floors.

Contact paper can be used to make paneled walls, but remember that the wood grain is a little large sometimes and may throw the look of your room off a little.
You can also use bead board paneling.  The boards look a little wide, but they will pass.

Remember that you can use your own walls for a background in a one wall diorama.  You can just shoot on your floor using your own carpeting and wall if you don't have baseboards.  If you do, move a table against the wall and shoot on that.  I've even used the inside of my wooden bookcases for scenes.  It just looks like wood paneling.