The increasing concerns about the environmental consequences of plastic waste and depletion of fossil fuels highlight the need for novel sustainable materials. Lignin, by-product of the forest industry, is the second most abundant natural polymer, but it is currently exploited for low-value applications. In this work, unrefined industrial lignin was modified by one-step reactive extrusion with a bio-sourced additive. The plasticised lignin was structurally characterised by nuclear magnetic resonance and Fourier-transform infrared spectroscopy, confirming that the reaction had taken place during extrusion. The lowering of the glass transition temperature from thermal analyses indicated the plasticization. In a second step, the plasticised lignin was melt processed with biodegradable poly(butylene adipate-co-terephthalate) for biomaterials up to 80 wt.% lignin content. The deformability and toughness measured by tensile tests were greatly improved compared to a reference biomaterial based on unmodified lignin. The feasibility of film blowing, up to 40 wt.% modified lignin, was demonstrated, indicating the potential use of biomaterials for sustainable packaging films. Successful mechanical recycling of aged blown films showed a possible end-of-life strategy and the biomaterials circularity.