This paper presents the application of a laser displacement meter for direct multi-purpose sensing of milling tool conditions. Using a laser displacement meter, a laser beam is projected onto the cutting tool and subsequently reflected. The intensity as well as the angle of the reflected beam are measured. The signals are interpreted for identification of tool geometry, tool whirling, or vibration. Signal processing and analysis depend on the application. A prototype system has been developed to demonstrate the feasibility of various applications, namely, (1) tool setting evaluation, (2) in-process measurement of milling cutter geometry and detection of tool failure, (3) continuous monitoring of milling cutter deterioration, (4) detection and measurement of chatter in milling, (5) measurement of milling tool bending and (6) thermal expansion.