The market for new durable products of modified wood has increased substantially during the last few years, especially in Europe. This increased interest depends partly on the restricted use of toxic preservatives due to increased environmental concern, as well as the need for reduced maintenance for wood products that are mainly for exterior use. Furthermore, as sustainability becomes a greater concern, the environmental impact of construction and interior materials should be included in planning by considering the entire life cycle and embodied energy of the materials used. As a result, wood modification has been implemented to improve the intrinsic properties of wood, widen the range of sawn timber applications, and acquire the form and functionality desired by engineers, without bringing environmental friendliness into question. The different wood modification processes are at various stages of development, and the challenges that must be overcome to expand to industrial applications differ amongst them. In this paper, three groups of wood modification processes are discussed and exemplified with modified wood products that have been newly introduced to the market: (i) chemical processing (acetylation, furfurylation, resin impregnation etc.); (ii) thermo-hydro processing (thermal treatment); and (iii) thermo-hydro-mechanical processing (surface densification). Building on these examples, the paper will discuss the environmental impact assessment of modification processes and further development needs.