In this study, Kraft lignin was depolymerised by hydrothermal liquefaction in near-critical water (290−335 °C, 250 bar) using Na2CO3 as an alkaline catalyst. Isopropanol was used as a co-solvent with the objective of investigating its capping effect and capability of reducing char formation. The resulting product, which was a mixture of an aqueous liquid, containing water-soluble organic compounds, and char, had a lower sulphur content than the Kraft lignin. Two-dimensional nuclear magnetic resonance studies of the organic precipitates of the aqueous phase and the char indicated that the major lignin bonds were broken. The high molar masses of the char and the water-soluble organics, nevertheless, indicate extensive repolymerisation of the organic constituents once they have been depolymerised from the lignin. With increasing temperature, the yield of char increased, although its molar mass decreased. The addition of isopropanol increased the yield of the water-soluble organic products and decreased the yield of the char as well as the molar masses of the products, which is indicative of a capping effect.