Microfibrillated cellulose (MFC) is an important industrial nanocellulose product and material component. New MFC grades can widen the materials property range and improve product tailoring. Microfibrillated lignocellulose (MFLC) is investigated, with the hypothesis that there is an optimum in lignin content of unbleached wood pulp fibre with respect to nanofibril yield. A series of kraft fibres with falling Kappa numbers (lower lignin content) was prepared. Fibres were beaten and fibrillated into MFLC by high-pressure microfluidization. Nano-sized fractions of fibrils were separated using centrifugation. Lignin content and carbohydrate analysis, total charge, FE-SEM, TEM microscopy and suspension rheology characterization were carried out. Fibres with Kappa number 65 (11% lignin) combined high lignin content with ease of fibrillation. This confirms an optimum in nanofibril yield as a function of lignin content, and mechanisms are discussed. MFLC from these fibres contained a 40–60 wt% fraction of nano-sized fibrils with widths in the range of 2.5–70 nm. Despite the large size distribution, data for modulus and tensile strength of MFLC films with 11% lignin were as high as 14 GPa and 240 MPa. MFLC films showed improved water contact angle of 84–88°, compared to neat MFC films (< 50°). All MFLC films showed substantial optical transmittance, and the fraction of haze scattering strongly correlated with defect content in the form of coarse fibrils.