This invention describes an adhesive composition that forms the basis of a heat-resistant, fire resistant, and water resistant polyurethane adhesive suitable for applications in the manufacture of wood products, and the method of making the adhesive. The wood finger-jointed studs produced using an adhesive derived from this invention can meet or exceed the fire rating of a period of 60 minutes according to ASTM E 119 and ASTM D 7374. The heat resistance of the adhesive is a result of incorporating thermally stable aromatic polyol molecules into the polymeric structures of the wood adhesive system, which is composed of the reaction products of a poly(methylene diphenyl diisocyanate), at least one of a polyether polyol and a polyester polyol; and the aromatic polyol that is a hydroxyl phenol in a preferred embodiment. Furthermore, this novel wood adhesive system possesses high water-resistance, making it suitable for the manufacture of highly durable engineered wood products. It is fast moisture-curable at ambient temperatures. It is also formaldehyde-free.