To enhance compression stability and fire retardancy of densified wood, a new modification method i.e., combined nitrogen–phosphorus (NP) fire retardant pre-impregnation with surface thermo-mechanical densification is used to fabricate a certain thickness of functionalized surface layer on poplar. This combined treated wood is investigated via vertical density profile (VDP), and the compression stability is revealed by both soaking test and cone analysis. Results demonstrate that the combined treatment hardened the surface of wood and reformed the interface combination of the NP with the wood cell wall, thus making the surface tissue more close-grained. Fire retardancy was also enhanced; the total heat release and CO generation values decreased by 21.9% and 68.4%, respectively, when compared with that of solely NP-treated wood. Moreover, surface hardness increased by 15.8%, and the recovery of surface hardness and thickness were 56.8% and 77.2% lower than that of simply densified wood. It appears that this NP-involved thermal densification could be considered as an alternative approach to enhance both the compression stability and fire resistance of wood.