Diamond-coated cutting tools have been widely employed in machining applications due to their superior properties. However, during the deposition process, significant residual stresses will be generated to affect the coating-substrate adhesion quality. In addition, interface delamination is another major factor causing catastrophic tool failure. The objectives of this research consist of: (1) to evaluate deposition-induced residual stresses of diamond-coated drills, (2) to analyze the interface failure of diamond-coated tools by numerical simulations of indentations, and (3) to evaluate deposition-induced residual stresses developed on diamond-coated macro/micro end mills with the inclusion of a cohesive zone model. The research scopes of this research are to investigate diamond-coated tool residual stresses as well as interface behaviors under the contact loading. The research methodologies include: (1) 3D CAD modeling of diamond coated drills and macro/micro end mills, (2) finite element analysis (FEA) of diamond-coated cutting tools after the deposition, and (3) indentation based simulations incorporating a cohesive zone model for the analysis of interface behaviors. The major findings were summarized as follows: (1) for diamond-coated drills, FEA results indicated that the edge radius had the most dominant effect on interface stresses, which were 1.41 GPa, 3.11 GPa for 3 µm re and 0.73 GPa, 2.94 GPa for 15 µm re in terms of σ_rmax and σ_θmax, (2) for the indentation with a spherical indenter, increasing the coating Young's Modulus reduced delamination sizes, and a thicker coating tended to have greater resistance to the interface delamination. Residual stresses facilitated the interface delamination. For the indentation with a wedge indenter, substrate surface curvature slightly affected the loading vs. displacement curve. Residual stresses increased delamination sizes. The coating with a larger Young's Modulus had less delamination sizes, and (3) as for diamond-coated end mills, the edge radius still dominantly affected residual stresses. When the size of macro end mills was scaled down to micro level, interface stresses were increased. The existence of a CZM reduced residual stresses. The major achievements included (1) diamond-coated tool geometry and cohesive zone effects on residual stresses and interface stresses, and (2) coating attribute, residual stresses, and substrate surface curvature effects on the interface behavior.