Owing to the increasing interest in sustainability and bio-based materials, softwood kraft lignin (SKL) was acetone-fractionated to reduce its heterogeneity and then demethylated to substitute phenol in lignin-phenol-formaldehyde (LPF) resins to be used as bio-based wood adhesives. This study investigated the effect of the demethylation of acetone-soluble SKL (AS-SKL) on the adhesion of LPF resins, where phenol was partially replaced with acetone-soluble demethylated kraft lignin (AS-DKL). Characterization of SKL, AS-KL, and AS-DKL using gel permeation chromatography (GPC), FTIR, and 31 P NMR spectroscopy showed that the demethylation was successfully performed; the molecular weight (MW) and the number of methoxy groups decreased, and the number of -OH groups increased. The MW, chemical reactions, and curing behavior of LPF resins synthesized with different AS-DKL levels (10, 20, 30, and 50 wt%) were also characterized. With the increase in AS-DKL content, the viscosity and MW of the resin increased, whereas the gelation time decreased. LPF resins with 10% AS-DKL showed the highest tensile shear strength and lowest peak curing temperature. These results suggest that 10% is an optimal AS-DKL level in LPF resins for plywood bonding and that demethylation is an effective way of utilizing SKL.