Drying of lignite and its storage for sufficient length of time in dried conditions has been an integral part of industrial economy, yet a fundamental understanding of the physico-chemical changes involved still lags far behind the practical use. Moisture is generally held in lignite by surface forces and oxygenated groups. Elimination of carboxyl groups by thermal decarboxylation has been found to reduce moisture holding capacity of lignite. In this paper a relationship has been shown to exist between carboxyl-oxygen and moisture of lignite at 60 percent relative humidity (RH) condition. Thermal behaviour of carboxylic acid functionality has been studied. Dehydroxylation was not observed at optimum temperature of decarboxylation. The nature and disposition of carboxylic acid functionality in lignite has been indicated.