Takao Doi, an astronaut who studies human space activities at Kyoto University, said using renewable materials would allow humans to "build houses, live and work in space forever".
Aiming to plant trees and build houses from timber on the moon and Mars in 50 years, Mr Doi's team set about designing the NASA-certified satellite.
Wood is a more durable material in space than it is on Earth as there's no water or oxygen that would rot or inflame it, researchers say.
The environmental impact of the satellite at the end of its life is also minimised, burning up in Earth's atmosphere with less pollution than metal equivalents.
LignoSat is made of honoki, a kind of magnolia tree native to Japan, and has been made using a traditional Japanese technique without screws or glue.
Kenji Kariya, a manager at the Sumitomo Forestry Tsukuba Research Institute said: "It may seem outdated, but wood is actually cutting-edge technology as civilisation heads to the moon and Mars.