Torrefaction is a pretreatment technology for biomass to enhance its fuel quality for thermal conversion. Torrefied biomass has many advantages for handling and storage including high energy density and hydrophobicity. It also improves the grindability, which is beneficial for cofiring with pulverized coal in a power plant. This study aims to investigate the optimum operating conditions for a biomass torrefaction process using steam as a purge gas. Wood pellets were torrefied using steam heated to between 230 and 300 °C in a lab-scale packed-bed reactor. The characteristics of the torrefied wood pellets (TWPs) were compared to those produced under nitrogen. The results showed that when the temperature increased from 230 to 300 °C, the TWP yield using steam decreased from 82 to 46 wt %, but the carbon content and heating value increased from 54 to 75 wt % and 21.14 to 28.85 MJ/kg, respectively. On the other hand, the TWPs using nitrogen had a slightly larger mass yield but with a lower carbon content and heating value. A significant increase in the grindability was achieved by torrefaction at 270 °C, compared to the wood pellets. However, the TWPs produced even at 300 °C had grindability lower than that of a sub-bituminous coal. Steam can be a good medium for torrefaction, which is also stable and free from the risk of self-ignition.