It is necessary to develop an on-machine measurement system of cutting tools with high precision and high efficiency on the NC machining, so that it can decrease non-production time and improve machining efficiency. A system for high precision measurement of rotating tools on the basis of image processing is described in this paper. Images are acquired from a digital camera and transmitted into a computer. The working profile of rotating tools and geometrical parameters are extracted accurately through image processing technology. Depending on theoretical analysis and experiments, this system can be widely applied to tool offset and NC programming based on working profile of the tools.