The objective of this work is to develop analysis methods based on 3D-FEM simulations for optimum design of the diamond cutting tools under various loading conditions, considering the sintering process of diamond–metal matrix to originate residual stresses. The work concerns the use of finite element simulation for modelling of thermal residual stresses generated during the sintering process of metal matrix diamond tools normally employed by the industry. Stress distribution fields were determined for the diamond shape using a 4-node, reduced integration ABAQUS solid element type C3D4. The residual stress fields in the nearby region of a diamond particle are examined to study the effects of the sintering temperatures, the stress–strain behaviour of the metal matrix and the compression pressure on the upper surface of the metal matrix. Through the simulations of the cutting forces on the diamond, it is demonstrated that the diamond retention capacity induced by the metal matrix (important for extending the life of a diamond tool) is principally dependent on the sintering process. Optimum design of the diamond cutting tools can be achieved by selecting the appropriate sintering temperatures, the stress–strain behaviour of the metal matrix and the compression pressure on the upper surface of the metal matrix during the sintering process.