Current techniques of lignin conversion are challenged by the low carbon utilization efficiency resulting from the severer generation of residual solid (char). Therefore, a better understanding of pathway for char formation is significant and highly desired to lignin valorization. In this work, we propose a fundamental mechanistic insight into char formation in the lignin depolymerization, using hydrothermal decomposition as the model reaction. The results demonstrate that the char featuring a multi‐layer construction of coke and oligomer contains mainly G units, primarily generated from native G‐lignin and demethoxylation of S‐lignin. Instead, H‐lignin contributes to the formation of volatile monophenols. Furthermore, new methylene bridges form between the benzene ring in lignin, which consequently results in the formation of recalcitrant char. Based on these observations, a plausible mechanism for char formation is proposed and verified by the density functional theory calculation.