The increasing global demand for sustainable energy has prompted the utilization of agricultural residues as viable alternatives to traditional fossil fuels. This study specifically focuses on the utilization of flax straw, a substantial by-product in Canadian agriculture, to produce innovative biofuels through the process of pelletization. To enhance the quality of the pellets, lignin extracted from flax straw was introduced as a novel and natural pellet binder. A comprehensive investigation was conducted to analyze effect of various parameters, including flax straw particle size, binder (lignin) content, moisture levels, and pelletization conditions on quality of produced pellets. It was observed that at a compressive force of 4000 N and a die temperature of 95 °C, pellets made from larger flax straw particles (300–355 µm) exhibited a density of 1016 kg/m³ and a mechanical durability of 26.4 %. Subsequently, by reducing the particle size to 75–106 µm, a marked enhancement in both density (1072 kg/m³) and durability (86.1 %, a 2.3-fold increase) was achieved. The incorporation of 10 % lignin into medium-sized flax straw particles (150–212 µm) increased pellet durability by 18.6 % from 73.5 % to 87.2 %. Introducing an optimal moisture content of 14 % to the flax straw resulted in a notable increase in both density (from 1036 to 1154 kg/m³) and durability (from 73.5 % to 90.6 %, a 23.3 % increase). Compressive force and die temperature positively affected pellet quality. Elevating the temperature from 75 to 115 °C in pellets made from 150 to 212 µm flax straw, modified with 10 % lignin and 14 % moisture content, led to a significant improvement in both density (1179 kg/m³) and durability (96.6 %, a 11.9 % increase). Physiochemical characteristics of flax straw, lignin, and the resulting pellets were explored using various techniques such as Fourier transform infrared, thermogravimetric analysis, and differential scanning calorimetry. These comprehensive investigations offer valuable insights for optimizing pellet materials and pelletization conditions and promoting the sustainable utilization of agricultural residues for bioenergy production.