Alkaline lignin was liquefied under hydrothermal conditions, and the liquefied products were effectively separated into four main types of substances: benzenediols, monophenolic hydroxyl products, weak-polar products, and water-soluble products (low-molecular-weight organic acids, alcohols, etc.). The production process and yield of each classified products are discussed. More than half of the yields of the oil products consisted of phenolics. A mechanism for phenolic production from lignin liquefaction is proposed. It suggests that the decomposition of lignin under hydrothermal conditions occurs mainly by three steps: hydrolysis and cleavage of the ether bond and the C-C bond, demethoxylation, and alkylation.