Loose straw, burns easily, just like wood shavings. Baled straw tends to simply smoulder, like trying to burn a phone book. The key factor is how easily a fire can obtain oxygen; tight baling of the straw severely limits a free flow of oxygen. Most importantly, strawbale houses are traditionally covered with stucco.
Tests have shown time and again that stuccoed strawbale houses have a much greater resistance to fire than do conventional timber structures. Strawbale structure fire tests have shown that stuccoed strawbale construction is able to withstand temperatures of 1800 degrees Farenheit for over one hour with no structural damage, which is sufficiently fire resistant for stuccoed strawbale to qualify as a commercial building material.
The growing list of council building departments which have approved strawbale construction is indicative that strawbale construction is not only safe, but is in fact safer than conventional timber construction.