Fast Fourier Transformation (FFT) and time-series analysis techniques have been widely used for the identification of manufacturing operations. Many theoretical studies have been performed recently to investigate the potential of wavelets as a signal identification technique. The important advantages of wavelets are the excellent identification capabilities of the transitions with custom-made basic waves and the variable resolution of the system. Wavelets and their applications in microdrilling operations are discussed in this paper. Wavelets are used to evaluate microdrilling signals, smooth the data, and provide compact information for evaluation of tool conditions.