Xylite is a byproduct of lignite coal production in Germany and, up to now, has normally been used as an additive for potting-soil production. Another possibility to use the residual xylite, however, is to produce fuel pellets out of it. These pellets can be used like wood pellets in domestic and industrial firing systems. Using a novel process based on wet grinding, agglomeration of the wet xylite, and subsequent drying of the raw xylite pellets, it is possible to convert xylite into high-quality fuel pellets without being dependent upon the mechanics of lignin softening. An important aspect for fuel pellets is their CO2 emissions. This is especially important for xylite, because it is ranked among the fossil fuels. In this work, xylite is mixed with CO2-neutral wood to produce composite pellets out of xylite and wood with reduced CO2 emissions. The topic of this study is the production of composite pellets, which have been produced using the mentioned novel pelleting process under variation of four parameters: wood content, moisture content, material temperature, and binder content. The interaction of these four parameters has been investigated using the design of experiments (DOE) methods. Models could be derived for different pellet quality parameters (i.e., pellet abrasion resistance), which describe the effects and interactions of the four parameters. Evaluation of the significant parameters for pellet qualities was carried out with statistical tests and graphical analysis. It became evident that, in the wet-pelleting process, the moisture content of the raw material and the mass fraction of wood are of great relevance for pellet quality. In contrast, the temperature of the material has no significant effect. The addition of potato starch as a binder results in a steady increase in pellet quality across the entire study.