Power devices with low losses are essential for achieving high-efficiency, low-cost, and miniaturized inverters and advance electronic technologies. Recently, diamond-based p-type groove semiconductor field-effect transistors have emerged as a hot research topic. Conventional method of fabricating surface grooves using inductively coupled plasma etching is costly and relatively slow. Here, we realized a novel diamond machining method using Fe–Ni alloy catalyzed H–O microwave plasma etching that can achieve high-rate and high-precision etching of diamond surfaces. Two major factors affecting the etching rate and pattern accuracy, wettability of diamond and carbon solubility with liquid metal, were identified. Oxygen added in H2 plasma allows the wetting increase, resulting in an improvement in uniformity of the etch area, while keeping the etch rate as high as 3 μm/min. The developed approached is promising for low-cost diamond patterning in electronic devices fabrication processes.