In this study, thermal modeling and finite element simulation of electrical discharge machining (EDM) has been done, taking into account several important aspects such as temperature-dependent material properties, shape and size of the heated zone (Gaussian heat distribution), energy distribution factor, plasma flushing efficiency, and phase change to predict thermal behavior and material removal mechanism in EDM process. Temperature distribution on the cathode has been calculated using ANSYS finite element code, and the effect of EDM parameters on heat distribution along the radius and depth of the workpiece has been obtained. Temperature profiles have been used to calculate theoretical material removal rate (MRR) from the cathode. Theoretically calculated MRRs are compared with the experimental results, making it possible to precisely determine the portion of energy that enters the cathode for AISI H13 tool steel. Also in this paper, the effect of EDM parameters on MRR has been investigated by using the technique of design of experiments and response surface methodology. Finally, a quadratic polynomial regression model has been proposed for MRR, and the accuracy of this model has been checked by means of analysis of residuals.