In order to expand the application scope of industrial lignin, a nonchemical-reaction color reduction method was carried out. Eucalyptus kraft lignin was fractionated using methanol/water as a solvent and two fractions were obtained. The fraction with lower molecular weight was named L which presents an obvious color advantage compared with the high-molecular fraction named H. The two fractions were characterized by GPC, FTIR, TG-DTG, visible light spectrum, HSQC and ¹³C NMR spectroscopy and relative mechanisms regarding color distinction were proposed. The H fraction contains numerous condensed structures which resulted in high molecular weight and less reactivity. Besides, abundance in conjugated double bonds and quinoid structures determined the darker color of H. The two fractions were sulfonated to prepare lignosulfonate and the product was evaluated as a dye dispersant. The SL fraction shows an obvious advantage regarding color performance compared with the SH fraction and commercial lignosulfonate. Moreover, the SL fraction presents favorable dispersibility and high temperature stability.