This work addressed the ongoing attempt for establishing a reliable yet simple system for the detection of tool wear and chatter in vertical milling machines. For this reason, a simple closed-loop system that utilizes wireless sensors, a dynamometer replacement and an artificial intelligence system for signal processing were designed. Various signal analysis techniques were applied to real force signal information containing chatter and wear to determine if they were suitable instruments for detection of such unwanted disturbances. An Index Based Reasoner (IBR) was proposed as a solution for overall signal processing. Furthermore, a novel Torque Analysis Device (TAD) that utilizes piezoelectric sensors was developed to replace the inconvenient and expensive dynamometer that is typically used to obtain force and torque information from vertical mills. When all aspects of this research were tested, the results were found to be successful and thus combined to form the closed-loop monitoring system.