A facile, sustainable method for the selective modification of aliphatic hydroxy (R–OH) groups in Kraft lignin was developed using an ionic liquid, 1-ethyl-3-methylimidazolium acetate (EmimOAc), as a solvent and catalyst. Selective R–OH modification was achieved by a one-pot, two-step homogeneous reaction: (i) acetylation of R–OH and aromatic OH (Ar–OH) groups with isopropenyl acetate (IPAc) as an acyl donor and (ii) subsequent selective deacetylation of the generated aromatic acetyl (Ar–OAc) groups. In step (i), IPAc reacts rapidly with Ar–OH but slowly with R–OH. The generated Ar–OAc is gradually deacetylated by heating in EmimOAc, whereas the aliphatic acetyl (R–OAc) groups are chemically stable. In step (ii), all R–OH is acetylated by IPAc and Ar–OAc which is a better acyl donor than IPAc, contributing to the rapid acetylation of the remaining R–OH, and selective deacetylation of the residual Ar–OAc is completed by adding a tiny amount of water as a proton source. This two-step reaction resulted in selective R–OH modification (>99%) in Kraft lignin with the remaining being almost all Ar–OH groups (93%). Selectively modified Kraft lignin was obtained with an acceptably high isolated yield (85%) and repeatability (N = 3). Furthermore, despite the lower substitution degree, it exhibited solubility in common solvents, heat-meltability, and thermal stability comparable to completely acetylated Kraft lignin.