The aim of the study was to investigate the effect of two different types of lignosulfonate (LS1 and LS2) added to urea–formaldehyde adhesive on the performance properties of five-layered plywood panels. The physical properties (density, thickness swelling, water absorption and moisture content), mechanical properties (modulus of rupture, modulus of elasticity and bonding quality) and free formaldehyde emission were evaluated in accordance with international standards. The results show that the lignosulfonate used in the production of plywood panels improves not only mechanical properties but also physical properties. Furthermore, the reinforcement caused by the use of proper lignosulfonate resulted in a decrease in free formaldehyde content. Using 3% LS1, eco-friendly plywood panels with improved physical (max. 22.40%) and mechanical properties (max. 42.40%) and drastically reduced free formaldehyde emissions (max. 16.27%) can be produced. It was concluded that lignosulfonates, as a byproduct of the pulping industry, can be used as a high-value additive in formaldehyde-based adhesives for engineered wood composites.