Flammability testing of undergarments is a topic that is often overlooked and rarely on the list of textiles to be tested for fire safety. However, it is particularly important for professionals exposed to fire risk to investigate the flammability of underwear as its direct contact with the skin can be critical to the extent and degree of skin burns. This research focuses on the suitability of affordable blends of 55 wt.% modacrylic, 15 wt.% polyacrylate, and 30 wt.% lyocell fibres that have the potential to be used for flame-resistant underwear. The influence of modacrylic fibre linear density (standard and microfibres), ring spinning processes (conventional, Sirospun, and compact), and knitted structure (plain, 2:1 rib, 2:1 tuck rib, single pique, and triple tuck) on their properties required for thermal comfort in high-temperature environments was investigated. Scanning electron and optical microscopy, FT-IR spectroscopy, mechanical testing, moisture regain, water sorption, wettability, absorption, DSC, TGA, and flammability were tested to assess the desired suitability. The wetting time (5–14.6 s) and water absorption time (4.6–21.4 s) of the knitted fabrics have shown excellent ability to transport and absorb water compared to the knitted fabrics created from a conventional blend of 65% modacrylic and 35% cotton fibres. The afterflame and afterglow times of less than 2 s met the criteria for non-flammability of the knitted fabrics according to the limited flame spread test method. The results show that the investigated blends have the potential to be used for affordable flame-retardant and thermally comfortable knitted fabrics for underwear.