EgPHI-1 is a member of PHI-1/EXO/EXL protein family. Its overexpression in tobacco resulted in changes in biomass partitioning, xylem fiber length, secondary cell wall thickening and composition, and lignification. Here, we report the functional characterization of a PHOSPHATE-INDUCED PROTEIN 1 homologue showing differential expression in xylem cells from Eucalyptus species of contrasting phenotypes for wood quality and growth traits. Our results indicated that this gene is a member of the PHI-1/EXO/EXL family. Analysis of the promoter cis-acting regulatory elements and expression responses to different treatments revealed that the Eucalyptus globulus PHI-1 (EgPHI-1) is transcriptionally regulated by auxin, cytokinin, wounding and drought. EgPHI-1 overexpression in transgenic tobacco changed the partitioning of biomass, favoring its allocation to shoots in detriment of roots. The stem of the transgenic plants showed longer xylem fibers and reduced cellulose content, while the leaf xylem had enhanced secondary cell wall thickness. UV microspectrophotometry of individual cell wall layers of fibers and vessels has shown that the transgenic plants exhibit differences in the lignification of S2 layer in both cell types. Taken together, the results suggest that EgPHI-1 mediates the elongation of secondary xylem fibers, secondary cell wall thickening and composition, and lignification, making it an attractive target for biotechnological applications in forestry and biofuel crops.