Drilling composite materials is one of the secondary processes of manufacturing industrial structures. However, drilling composite materials presents a number of problems such as degradation of mechanical behavior. In this study, effects of spindle speed, feed rate, and drill point geometry on residual tensile strength are studied. Acoustic emission technique with a wavelet-based signal processing method is developed to monitor the residual tensile strength of drilled laminates. Cumulative count, amplitude, and energy are used as time-domain parameters to characterize the process. According to wavelet analysis, frequency distribution and energy percentage of each damage mechanism (matrix cracking, fiber breakage, and fiber slipping) during tensile test are determined.