Wavelet transforms and fuzzy techniques are used to monitor tool breakage and wear conditions in real time according to the measured spindle and feed motor currents, respectively. First, continuous and discrete wavelet transforms are used to decompose the spindle and feed ac servo motor current signals to extract signal features so as to detect the breakage of drills successfully. Next, the models of the relationships between the current signals and the cutting parameters are established under different tool wear states. Subsequently, fuzzy classification methods are used to detect tool wear states based on the above models. Finally, the two methods above are integrated to establish an intelligent tool condition monitoring system for drilling operations. The monitoring system can detect tool breakage and tool wear conditions using very simple current sensors. Experimental results show that the proposed system can reliably detect tool conditions in drilling operations in real time and is viable for industrial applications.