A Smart Machining System for Computer Numerical Control (CNC) Milling continually adjusts the cutting process parameters to optimize for cutting tool life and material removal rate. The system depends on sensors to gather information from the machine during cutting, but commercially available sensors detract from the effectiveness of the cutting system by lowering the system stiffness. This research focuses on the development of the electronics for a Smart Tool Holder (STH) and potential applications such as measurement of mechanical cutting power and suppression of chatter. The STH is a standard milling tool holder modified to hold a torque strain gauge bridge, a thermocouple and a Bluetooth radio transmitter. The STH is meant to overcome some of the different limitations imposed by bed dynamometers, microphones and spindle power sensors without reducing the system stiffness. Comparison of the mechanical power estimates from the STH and a conventional power sensor showed 10% difference.