Method of forming colloidal lignin particles, comprising the step of dissolving lignin in a mixture of organic solvents, feeding of the said solution into water, and forming acolloidal dispersion of lignin. The used solvents are recovered with methods such as distillation and reused in the process. Water is removed from the colloidal dispersion by ultrafiltration and reused in the process. The concentrated colloidal dispersion is dried by spray drying. The invention can be used in applications where the colloidal nature of lignin will afford an advantage over bulk lignin.