Pellets are produced by compressing the wood material which has first passed through a hammer mill to provide a uniform dough-like mass. This mass is fed to a press where it is squeezed through a die having holes of the size required (normally 6 mm diameter, sometimes 8 mm or larger). The high pressure of the press causes the temperature of the wood to increase greatly, and the lignin plastifies slightly forming a natural 'glue' that holds the pellet together as it cools.
Pellets conforming to the US's Pellet Fuel Institutes high quality standards have less than 10% water content, are uniform in density (density in excess of 1 ton / cubic meter, so they do not float if placed in water), have good structural strength, and low dust and ash content. Because the wood fibres are broken down by the hammer mill, there is virtually no difference in the finished pellets between different wood types. Pellets can be made from nearly any wood variety, provided the pellet press is equipped with good instrumentation, the differences in feed material can be compensated for in the press regulation.

New pellet mills are being opened in the United States on a rapid basis. The scarcity and unreliable supply that used to come with the dependence on wood pellets has vanished.