The efficiency of a machining process can be measured by evaluating the quality of the machined surface and the tool wear rate. The research reported herein is mainly focused on the effect of cutting parameters and tool wear on the machined surface defects, surface roughness, deformation layer and residual stresses when dry milling Stellite 6, deposited by overlay on a carbon steel surface. The results showed that under the selected cutting conditions, abrasion, diffusion, peeling, chipping and breakage were the main tool wear mechanisms presented. Also the feed rate was the primary factor affecting the tool wear with an influence of 83%. With regard to the influence of cutting parameters on the surface roughness, the primary factors were feed rate and cutting speed with 57 and 38%, respectively. In addition, in general, as tool wear increased, the surface roughness increased and the deformation layer was found to be influenced more by the cutting parameters rather than the tool wear. Compressive residual stresses were observed in the un-machined surface, and when machining longer than 5 min, residual stress changed 100% from compression to tension. Finally, results showed that micro-crack initiation was the main mechanism for chip formation.