An improved pet bed assembly includes a water resistant outer cover defining an enclosed space and a removable blanket that is removably attached to the exterior of the outer cover. The removable blanket is preferably constructed so as to be completely removable from the outer cover for washing and replacement and is further preferably constructed so as to be reversible, with an attachment mechanism that permits it to be secured to the outer cover with either surface facing the pet. An inner bed assembly is positioned within the enclosed space that preferably includes a perimeter bolster portion and an interior cushion portion. The perimeter bolster cushion has a greater height than the interior cushion portion and its uncompressed state and is less compressible than the interior cushion. The interior cushion portion preferably includes a first cushioning material positioned within a first compartment that resists lateral displacement during use, which provides constant stable cushioning to the pet honorable conditions as well as a second laterally displaceable cushioning material within a second, upper compartment that permits the pet to burrow into and nest comfortably on the pet bed assembly.