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The mechanism of lignin nanoprecipitation and subsequent self-assembly was elucidated by studying generation of lignin nanoparticles (LNPs) from aqueous ethanol. LNP formation was found to follow a kinetically controlled nucleation-growth mechanism in which large lignin molecules formed the initial critical nuclei. Using this information, we demonstrate entrapment of budesonide in LNPs and subsequent pH-triggered and surfactant-responsive release of this synthetic anti-inflammatory corticosteroid. Overall, our results not only provide a promising intestinal delivery system for budesonide, but also deliver fundamental mechanistic understanding for the entrapment of actives in LNPs with controlled size and release properties.