Demethylation of industrial lignin has been for long coveted as a pathway to the production of an abundant natural substitute for fossil-oil derived phenol. In an attempt to possibly identify a novel Kraft lignin-demethylating enzyme, we surveyed a collection of fungi by using selected ion flow tube-mass spectrometry (SIFT-MS). This method readily identifies methanol resulting from lignin demethylation activity. Absidia cylindrospora, and unidentified Cylindrocladium sp. and Aspergillus sp. were shown to metabolize lignin via different pathways, based on the HPLC analysis of lignin fragments. Of these three, Cylindrocladium and Aspergillus were shown to retain most of the lignin intact after 3 weeks in culture, while removing about 40% of the available methoxy groups. Our results demonstrate that after optimization of culture and lignin recovery methods, biological modification of Kraft lignin may be a feasible pathway to obtaining demethylated lignin for further industrial use.