The Shulhan Aruch (Orah Haim 32; listen to audio recording for precise citation) codifies a number of Halachot relevant to the preparation of Tefillin, based on the Gemara’s discussion in Masechet Shabbat (28). One requirement is that the leather used for the parchment inside the Tefillin must be taken from a kosher species of animal or bird. This requirement is inferred from the Torah’s comment that we must wear Tefillin "in order that the Torah of Hashem shall be in your mouth" (Shemot 13:9). The Sages understood this to mean that the Tefillin must be made from animals that may be "in your mouth," meaning, from kosher species.
However, although the parchment must be produced from a kosher species, the specific animal does not have to be suitable for consumption. Meaning, one may use for the parchment leather taken from a kosher animal that was not slaughtered according to Halachic standards, or that was a Terefa (terminally ill). Even though these animals may not be eaten, their hide may be used for Tefillin if they belong to a kosher species.
The Shulhan Aruch further notes that Tefillin may not be produced from fish skin, even the skin of a kosher species of fish. Fish skin is generally foul-smelling ("Nafish Zuhama"), and is therefore disqualified for use in making Tefillin.
Interestingly, the Be’ur Halacha (commentary by Rav Yisrael Meir Kagan of Radin, 1839-1933) applies these qualifications to the production of Torah books, such as Tanach and Talmud. The paper used for Torah texts should not be produced from species from which the parchment in Tefillin may not be produced.
Later in this Siman (Se’if 37), the Shulhan Aruch rules that these guidelines also apply to the leather of the Batim (Tefillin boxes). This leather, too, must come only from a kosher species of animal or fowl.
In Se’if 42, the Shulhan Aruch discusses the protrusions of the Hebrew letter "Shin" which are to appear on both sides of the Bayit (box) of the Tefillin Shel Rosh. He writes that these protrusions are required by force of "Halacha Le’Moshe Mi’Sinai" – an oral tradition dating back to the Revelation at Mount Sinai. They are made from the folds in the leather of the Bayit. The "Shin" on the right side of the Bayit is designed with three "heads," whereas the "Shin" on the left side must have four "heads."
The parchment inside the Tefillin is wrapped in animal hair, and this, too, must be taken from a kosher species of animal or fowl. The stitching of the Tefillin leather is similarly taken from the veins of a kosher species. The Shulhan Aruch writes that these guidelines have been conveyed to us as a "Halacha Le’Moshe Mi’Sinai."
Summary: The leather used for the parchment inside the Tefillin, as well as the leather used for the Tefillin boxes, must be taken from a kosher species of animal or bird. Fish skin may not be used. The parchment must be wrapped in animal hair taken from a kosher species, and the leather is sewn with thread taken from the veins of a kosher species.
