This article presents a novel approach to compatibilize Kraft lignin with polyethylene that involves the use of modified poly (styrene-co-ethylene-co-butylene-co-styrene) (SEBS) as unreactive compatibilizers. As SEBS shows no compatibilizing effect on Kraft lignin-polyethylene composites, SEBS was functionalized via nitration followed by amination to obtain nitrated (SEBS-NO2) and aminated (SEBS-NH2) SEBS. The compatibilizing effects of SEBS derivatives were studied by means of morphological and mechanical analyses. The results show that SEBS-NO2 is less effective than SEBS-NH2, the later displaying comparable compatibilizing efficiency to a commercial reactive compatibilizer based on maleated polyethylene. Overall, compatibilization was found to decrease lignin particle size. Addition of SEBS-NH2 varying between 1% and 10% improved the tensile strength of composites by up to 96%, elongation at break by up to 64%, and impact strength by up to 48%. Finally, the crystallinity and density of the resulting composites were also studied. © 2014 Wiley Periodicals, Inc. J. Appl. Polym. Sci. 2014, 131, 41040.