Poly(butylene adipate terephthalate)/thermoplastic starch (PBAT/TPS) blends are a significant family of biodegradable plastics holding more than 10% of the market share with widespread applications such as biodegradable bags and mulching films. However, in commercial PBAT/TPS blends, the TPS content seldom exceeds 20−30 wt % since the TPS phase negatively impacts the mechanical properties of the film and increases the water sensitivity. This increases the cost of the material and reduces its biobased content. To address this limitation, up to 10 wt % lignin-containing cellulose nanofibrils (LCNFs) with a significant lignin content (around 20 wt %) were added to PBAT/TPS blends using twinscrew extrusion. The mechanical, morphological, rheological, and water sorption properties of the films were then investigated. The incorporation of LCNFs positively influenced both the ultimate strength and tensile modulus, without sacrificing ductility. Scanning electron microscopy images revealed a nodular morphology of TPS, and the inclusion of LCNFs induced an increase in the size of the dispersed TPS nodules, accompanied by a broadening of the size distribution. The addition of LCNFs also resulted in an increase in the melt stiffness of the blend and a substantial reduction in moisture sorption at both normal and high relative humidity levels, markedly contributing to mitigating the water sensitivity of PBAT/TPS blends. As a proof of concept, thin films from PBAT/TPS/LCNF blends were fabricated through blown-film extrusion, confirming that the incorporation of LCNFs did not impact the material processing. The results offer a sustainable, fully biobased alternative to improve the mechanical properties, mitigate water sensitivity in PBAT/TPS blends, and concomitantly increase their biobased content.