Drilling is considered as a complex three-dimensional cutting process involving variations in cutting speed and rake angle along the cutting edge. The present paper investigates the effect of cutting parameters on chip morphology characteristics, chip compression ratio and its micro-hardness during dry drilling of austempered ductile iron (ADI). The chip morphology characteristics were examined using an optical microscope and a scanning electron microscope (SEM). Shear induced lamella structure was observed at the chip-free surface at higher cutting speed. Chip micro-hardness and chip compression ratio (CCR) values were calculated for all cutting conditions to investigate the influence of cutting parameters on plastic deformation of ADI during its transformation to chips. The obtained results show good relationship between the chip micro-hardness, CCR, cutting parameters and chip morphology.