Biocomposite of wood flour (WF)/polypropylene (PP) composite (WPC) is not easily flame-retarded because of the different flame retardant mechanisms of PP and WF. In order to improve the flame retardancy of WPC, a single flame retardant of ammonium polyphosphate (APP) modified via ion exchange reaction with ethanolamine, which is named as ETA-APP, was used to prepare flame-retardant WPC. The flammability was investigated by limiting oxygen index (LOI), UL-94 vertical burning test, and cone calorimeter. The results show the flame retardant properties of the flame-retardant WPC are improved greatly. The limiting oxygen index is 43.0%, which is increased by 71.6% compared with that of WPC with the same content of APP. And the vertical burning test can pass UL-94 V-0 rating. The results of cone calorimeter test show that the heat release rate (HRR) and total heat release (THR) of the WPC with ETA-APP are decreased in comparison with WPC/APP. The flame-retardant mechanism of WPC/ETA-APP system was investigated by thermogravimetric analysis (TGA), Fourier transform infrared (FTIR), and X-ray photoelectron spectroscopy (XPS). It is found that the hydroamine groups and phosphate acid in ETA-APP might promote the etherification and dehydration reactions in WPC/ETA-APP, which facilitated the formation of stabile char residue of WPC. Consequently, the flame-retardant efficiency is improved greatly. The flexural properties of WPC/30 wt % ETA-APP increase a lot in comparison with WPC/30 wt % APP, which is because of the better compatibility of ETA-APP with WF.