Ultra-fine grained chips with higher hardness and strength than bulk can be produced by severe plastic deformation during orthogonal metal cutting. A finite element method was developed to characterize the distribution of stress, strain, strain rate and temperature in the deformation area at different rake angles and cutting velocities. The coefficient of friction in the tool-chip interface is approximately obtained according model of mean coefficient of friction which is based on experiments in any machining conditions. The formation mechanics of ultra-fine grained chip is discussed and effect of rake angle on microstructure of chips is highlighted. The results of experiment and modeling have shown that chip materials with ultra-fine grained and high hardness can be produced with more negative tool rake angle at some lower cutting velocity.