Lignin, a valuable polymer of natural origin, displays numerous desired intrinsic properties; however, modification processes leading to the value-added products suitable for composite materials’ applications are in demand. Chemical modification routes involve mostly reactions with hydroxyl groups present in the structure of lignin, but other paths, such as copolymerization or grafting, are also utilized. On the other hand, physical techniques, such as irradiation, freeze-drying, and sorption, to enhance the surface properties of lignin and the resulting composite materials, are developed. Various kinds of chemically or physically modified lignin are discussed in this review and their effects on the properties of polymeric (bio)materials are presented. Lignin-induced enhancements in green polymer composites, such as better dimensional stability, improved hydrophobicity, and improved mechanical properties, along with biocompatibility and non-cytotoxicity, have been presented. This review addresses the challenges connected with the efficient modification of lignin, which depends on polymer origin and the modification conditions. Finally, future outlooks on modified lignins as useful materials on their own and as prospective biofillers for environmentally friendly polymeric materials are presented.