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Water, which frequently inhibits organic reactions, improves the hydrodeoxygenation activity of lignin-derived guaiacol on a bifunctional catalyst of Rh/SiO2–Al2O3 in a biphasic mixture of n-decane and water. The unique properties of subcritical water appear to promote hydrodeoxygenation, which improves the production of monooxygenates by removing more oxygen atoms of guaiacol while suppressing the formation of fully deoxygenated hydrocarbons because of the poor solubility of hydrophobic monooxygenates.