Demethylation technique has been used to enhance lignin reactivity for preparation of phenolic resins. However, the demethylation efficiency and the demethylated lignin (DL) reactivity were still unsatisfactory. To improve the demethylation efficiency, alkali lignin was demethylated under different mild conditions using sodium sulfite as a catalyst. Lignin and DL were characterized by ¹H-NMR (nuclear magnetic resonance) and Fourier transform infrared (FT-IR) spectroscopy to determine the demethylation mechanism. With the demethylation of lignin, the methoxyl group content decreased from 1.93 m mol/g to 1.09 m mol/g, and the phenolic hydroxyl group content increased from 0.56 m mol/g to 0.82 m mol/g. These results revealed that methoxyl groups were attacked by SO₃²⁻, and some methoxyl groups were converted to phenolic hydroxyl groups by a nucleophilic substitution reaction, generating DL with high reactivity. The chemical properties of lignin-based phenolic resins were studied by ¹³C-NMR and FT-IR spectroscopy, and their physical properties were also investigated. The results indicated that lignin-based phenolic resins exhibited faster curing rate and shorter gel time. In addition, the bonding strength increased from 0.92 MPa to 1.07 MPa, and the formaldehyde emission decreased from 0.58 mg/L to 0.22 mg/L after lignin demethylated at the optimum condition.