Interfacial friction between cutting tool and work material leads to tool wear during machining, which adversely affects surface integrity of machined components. In addition, more energy is expected to be consumed to accommodate higher loading during machining. Dimensional accuracy and repeatability of the workpiece is also hard to guarantee when machining with worn tools. In this paper, surface integrity of AISI H13 samples milled using the PVD coated inserts is studied. Three levels of tool flank wear (VB = 0, 0.1mm, 0.2mm) were used to cut H13 tool steel in the experiment. At each level of flank wear, the effects of cutting speed, feed, and radial depth-of-cut on surface integrity were investigated respectively. Under a diverse combination of milling parameters, the evolution of surface integrity with tool flank wear was analyzed. A novel on-line optical tool inspection system integrated with CNC machining center was used to inspect the evolution of flank wear with milling time in order to monitor tool wear conditions.