You certainly can. I see pet beds here a lot which are lined with it. You can also go to this link to read about it:
•The aesthetic value, durability and soft texture---plus the fact that it's hypoallergenic---make sheepskin an ideal choice for home furnishings. Its naturally resistance to flames and static add to its qualities. People use single sheepskins as area rugs, while larger rugs made from various sheepskins can also be found. Sheepskins get turned into a multitude of products, from car-seat covers to beds for pets to horseback-riding saddles.
What Is Sheepskin? | eHow.com