This paper reports a novel liquefaction process that is capable of depolymerizing the natural biopolymer lignin into a liquid bio-oil with a very low oxygen content, suitable as a blending component to be combined with conventional fossil fuels for motor fuel applications. During the conversion, both depolymerization and removal of oxygen by formation of water occur in a single step. Formic acid serves as both the hydrogen donor and reaction medium in the pyrolysis/solvolysis process. Using an alcohol as cosolvent can improve the liquid yields and H/C ratios. Very little coke (5%) is produced. The liquids produced comprise two easily separable phases, where the lighter organic phase consists mainly of low molecular weight alkylphenols and C-8-C-10 aliphatics. The process is developed to be combined with ethanol production from lignocellulosic carbohydrates in a biorefinery concept aimed at converting all fractions of the wood into renewably sourced liquid fuels.