Thermo-hydro-mechanical (THM) treatment is a combined action of temperature, moisture, and mechanical force, which leads to modified wood (THMW). Various types of eco-friendly THM processes have been developed to enhance wood properties and generate new materials, such as welding, densification, molding, bending, profiling, artificial aging, panel manufacture, and surface densification. The various transformation processes in the course of THM bring about positive effects in terms of the mechanical and physical properties as well as the biological durability. To the negative effects belong the loss in strength and fracture toughness, and one of the challenges is to minimize these negative aspects. The present paper reviews the chemical transformations processes during THM treatment in a closed processing system and presents the relationship between processing parameters and THMW properties. The discussion includes the problems associated with eliminating the set recovery of densified wood by THM posttreatments and the chemical origin of the relaxation of internal stresses induced by densification.