The inferior thermoplastic properties have limited production of melt-spun fibers from lignin. Here we report on the controlled esterification of softwood kraft lignin (SKL) to enable scalable, solvent-free melt spinning of microfibers using a cotton candy machine. We found that it is crucial to control the esterification process as melt-spun fibers could be produced from lignin oleate and lignin stearate precursors with degrees of esterification (DE) ranging from 20-50%, but not outside this range. To fabricate a functional hybrid material, we incorporated magnetite nanoparticles (MNPs) into the lignin oleate fibers by melt blending and subsequent melt spinning. Thermogravimetric analysis and X-ray diffraction studies revealed that increasing the weight fraction of MNPs led to improved thermal stability of the fibers. Finally, we demonstrated adsorption of organic dyes, magnetic recovery, and recycling via melt spinning of the regular and magnetic fibers with 95% and 83% retention of the respective adsorption capacities over three adsorption cycles. The mechanical recyclability of the microfibers represents a new paradigm in lignin-based circular materials.