Here, we report the preparation of internally crosslinked nanoparticles from hydroxymethylated lignin. The hydroxymethylated lignin nanoparticles (HLNPs) preserve the phenolic hydroxyl groups, while the new aliphatic hydroxyls increase solubility of lignin in aqueous organic solvents and provide means to control particle size and increase concentration of produced hydrocolloids. Additionally, the hydroxymethyl groups can be used as active sites for further modification or crosslinking of lignin. We show that thermally cured HLNPs are stable in organic solvents and aqueous media over a broad pH range, which opens a new possibility of using them as templates for lignin-metal and lignin-inorganic hybrid nanoparticles. Exploiting the preserved phenolic hydroxyl groups we demonstrate reduction of silver ions and formation of colloidally stable hybrid silver-lignin nanoparticles under alkaline conditions. These silverlignin nanoparticles can be used as colloidal sensors for reactive oxygen species using hydrogen peroxide as an example. We further present covalent surface functionalization of the internally crosslinked particles through a base-catalyzed epoxy ring-opening reaction to obtain pHresponsive hydrocolloids of broad interest for different applications.