Cellulose and lignin are abundant renewable biopolymers that can be used for the manufacture of new, environmentally friendly materials. The objective of this study was to produce composites of kraft lignin, which were reinforced with cellulosic thermomechanical pulp (TMP) fibers. Furthermore, the fibers were chemically modified resulting in cross-linking or increased hydrophobicity. Ideally, these modifications improve interaction between the components in the composite. The effects of the modifications on the tensile strength and thermal properties of the composites were investigated, and the interactions between components were examined by infrared spectroscopy and scanning electron microscopy. When the fibers were cross-linked with polyethylene glycol diglycidyl ether (PEGDE), the tensile strength properties of the composite were significantly improved. Depending on the amount of PEGDE added, tensile strength was increased by 16–34%, and Young's Modulus by 6–18%, but at the same time the strain at break remained the same. Similarly, by using PEGDE, the amount of free plasticizer (PEG) could be reduced, which also improved the water-resistance of the composite. According to scanning electron microscopy, all chemical treatments improved the compatibility of the fibers with the lignin matrix. However, the increase in compatibility was highest when the fibers were cross-linked with a combination of glyoxal and neopentyl glycol (GL/NPG) or by increasing hydrophobicity through acetylation (AC), although the tensile strength properties were the best in case of cross-linking with PEGDE.