This paper presents a new computer simulation model for drilling and reaming processes. The model is made of four parts: the force model for the cutting lips, the force model for the chisel edge, the dynamic model for the machine tool (including the cutter) and the regenerative correlation between the force and machine tool vibration. The models for the forces and the machine tool are similar to the existing models. The key to the model is the regeneration correlation between the cutting forces and the machine tool vibration. It uses a new 3D chip formation model to describe the interaction between the cutter and the workpiece. The model can predict the dynamic forces and chatter limit. It also reveals several interesting phenomena, such as how the feed and the point angle of the drill affect the chatter limit. The model is implemented using C++ language with an interface to I-DEASο CAE software system. The simulation results are validated experimentally by both drilling and reaming under various cutting conditions. The experiment results show that the simulation is accurate with average error about 10%. A number of research issues are also proposed for the future work.