Display omitted •The HTL pathways and mechanisms of lignocellulose components are outlined.•The impact of operating parameters on producing bio-oil are discussed in detail.•Bio-oil upgrades contribute to produce liquid fuels and bio-based chemicals.•The limitations and prospects of the current HTL technology are presented. Abundant, environmentally friendly, and sustainable lignocellulose is a promising feedstock for replacing fossil fuels, and hydrothermal liquefaction is an effective technology to convert it into liquid fuels and high-value chemicals. This review summarizes and discusses the reaction mechanism, main influence factor and the production application of hydrothermal liquefaction. Particular attention has been paid to the reaction mechanism of the structural components of lignocellulose, i.e., cellulose, hemicellulose, and lignin. In addition, the influence factors including types of lignocellulose, temperature, heating rate, retention time, pressure, solid–to-liquid ratio, and catalyst are discussed in detail. The limitations in the hydrothermal liquefaction of lignocellulose and the prospects are proposed. This provides deep knowledge for understanding the process as well as the development of advanced products from lignocellulose.