New biomass utilization technologies and concepts are needed to suffice future increasing energy demand. This paper contributes to the understanding of liquid phase pyrolysis (LPP) oil upgrading, which significantly differs from fast pyrolysis (FP) oil upgrading processes. A two-step hydrodeoxygenation (HDO) process was established to convert the LPP oil into a biofuel with diesel fuel-like properties. In the first HDO step (250 °C, 85 bar), the bulk of the water and most of the highly-oxygenated water-soluble carbonaceous constituents were removed, to lower hydrogen consumption in the second HDO step. In addition, the highly reactive compounds were stabilized in the first step. In the second HDO step (400 °C, 150/170 bar), the product specification was improved. This paper shows a proof-of-principle for a two-step HDO process for converting LPP oil to a diesel-like biofuel.