Steam pre-treatment can effectively improve the dimensional stability of panel products such as particleboard and fiberboard. At temperatures above 200–210 °C steam pre-treatment might result in a significant reduction of the bond strength of the panel product. The results of an effective two stage heat pre-treatment process, in which treatment temperatures below 200 °C are used, are given in this paper. The variations in process conditions which affect the particleboard properties are described in detail. A two- stage heat pre-treatment with temperatures below 200 °C appears to improve the dimensional stability of panel products. The process conditions used have an effect on thickness swelling and internal bond properties of the particleboard prepared, especially during the first process stage (hydrothermolysis). The best results were obtained with wood particles which were only thermolysed (without curing).