Demethylation of softwood kraft lignin from woody biomass to improve the hydroxyl number in modified demethylated lignin and to produce lignin-based polyols was investigated using several biophysical techniques. Lignin is a tremendously under-developed natural polymer co-generated through papermaking and biomass fractionation. Molecular weights of lignins were analyzed by high-performance size-exclusion chromatography (HPSEC). Molecular weights of softwood kraft lignin (SKL) and demethylated lignin (DL) were determined as 1071 and 891 gmol-1, respectively. For demethylation, iodocyclohexane in dimethyl formamide (DMF) was used under reflux conditions, with a resulting yield of 87%. Fourier transform infrared spectroscopy (FTIR) was used to determine characteristic absorption peaks of softwood kraft lignin and demethylated lignin. Significant spectral differences were noticed between the two types of lignin due to changes in chemical structure. Total hydroxyl numbers were determined by titration. Phosphorus nuclear magnetic resonance spectrometry (31P-NMR) was employed to analyze the structure of lignin and different types of phenolic hydroxyl units. Nevertheless, further chemical and biological modifications within the lignin molecule are needed for various industrial applications to synthesize polyurethane foam by using chemically modified lignin-based polyols.