The goal of this research is to enhance the diamond-coated cutting tool performance through fundamental understanding of the interface adhesion of chemical vapor deposition (CVD) diamond-coated tungsten carbide cutting tools. CVD diamond-coated cutting tools have the advantages of superior tribological properties and low cost in fabrications compared to polycrystalline diamond tools. However, the applications of diamond-coated tools are limited by interface delamination. Therefore, it is necessary to not only accurately detect interface delamination events, but also understand the delamination behavior affected by coating fractures. The primary objectives of this research are: (1) to utilize acoustic emission (AE) signals for wear monitoring of diamond-coated tools in machining, (2) to develop a finite element (FE) model of indentation for investigating the interface adhesion related to coating-substrate system parameters, (3) to combine micro-scratch testing and FE sliding model to assess the interface cohesive characteristics, and (4) to investigate the interface delamination considering coating cracking by developing a 3D indentation/sliding model using the extended finite element method (XFEM). The research methods include: (1) machining test A359/SiC-20p composite with an acoustic emission sensor, (2) finite element (FE) modeling and analysis of indentation and sliding with different configurations, and (3) scratch testing on diamond-coated tools. The major results are summarized as follows. (1) The short-time Fourier transform method has a potential for monitoring diamond coating failures. (2) In scratch testing, the tangential force and AE signal intensity vary significantly when the coating delamination critical load is reached. (3) Increasing the coating elastic modulus will reduce the delamination length and a thicker coating tends to have greater resistance to the interface delamination. (4) Coating cracking will decrease the interface delamination size, while the deposition stress will increase the delamination radius and critical load of interface failures. The contributions of this study include the following. (1) This study correlates the AE frequency response during machining with diamond-coated tool failures. (2) A cohesive zone model has been incorporated in FE modeling of indentation and scratch processes on a diamond-coated tool in evaluating coating adhesion with interface characteristics. (3) XFEM models of indentation and scratch simulations on a diamond-coated tool with an embedded cohesive layer are developed to simultaneously study coating cracking and interface delamination.