High performance XY-table is commonly used in packaging equipments which needs rational tolerance to ensure its high performance requirements and low manufacturing costs. The related studies mainly focus on high speed motion control algorithms and high precision structure design. The proper tolerance is essential in the development process of new products. In this paper, a new method for tolerance optimization based on Multi-body systems is presented. The volumetric error model for XY-table is established based on Multi-body systems. And then, by identifying the basic geometric error components, the relationships between the final output precision of the XY-table and the geometry error sources are established. The tolerance optimization model of XY-table using the above relationships is presented. In this model, objective function is the total manufacturing costs and the constraints are the above relationships. By solving the optimization model, the optimal tolerances are obtained. Finally, a tolerance design example of LED die bonder is given to illustrate the proposed method.