Parametric and nonparametric kernel methods dominate studies of animal home ranges and space use. Most existing methods are unable to incorporate information about the underlying physical environment, leading to poor performance in excluding areas that are not used. Using radio-telemetry data from sea otters, we developed and evaluated a new algorithm for estimating home ranges (hereafter Permissible Home Range Estimation, or “PHRE”) that reflects habitat suitability. We began by transforming sighting locations into relevant landscape features (for sea otters, coastal position and distance from shore). Then, we generated a bivariate kernel probability density function in landscape space and back-transformed this to geographic space in order to define a permissible home range. Compared to two commonly used home range estimation methods, kernel densities and local convex hulls, PHRE better excluded unused areas and required a smaller sample size. Our PHRE method is applicable to species whose ranges are restricted by complex physical boundaries or environmental gradients and will improve understanding of habitat-use requirements and, ultimately, aid in conservation efforts.