An experimental investigation was performed to study drill wear and its effect on acoustic emission and drilled hole exit delamination for both carbide and PCD drills when drilling in advanced composites (AS4/PEEK). Drilling conditions were selected to minimize exit hole delamination for the carbide drill and a series on 80 holes were drilled with both carbide and PCD drills. Acoustic emission signals were acquired and flank wear width were measured after every fifth hole. Carbide drill material was found to wear more than the PCD drill. Exit hole delamination increases with tool wear for both carbide and PCD drills as shown from measurements and SEM micrograph images of drilled holes. The average acoustic emission (AE) energy per event as well as total AE energy were found to decrease with tool wear. The results show that acoustic emission could be used successfully for real-time monitoring and prediction of drill wear and exit hole delamination.