This paper presents a non-contact, convenient, efficient cutting tool wear monitoring technique of dicing wheel based on a knife-edge diffraction interferometry. Dicing is a standard technology for fabricating components of micro-electromechanical systems, and the wear of dicing wheels may influence the components quality with respect to cutting-surface quality and subsurface damage. Based on the edge diffraction principle that utilizes interference of transmitted wave and a diffracted wave at the wheel end, the diffraction patterns according to dicing wheel conditions were scanned, and cross-correlation was used to extract attrition and abrasive wear from the measured diffraction patterns. Attrition and abrasive wear were related with lag and similarity coefficients of cross-correlation, respectively. This measurement technique can be used for in-process monitoring of wheel conditions or wheel radius compensation and can be included in dicing parameter optimization process.