Bulk metallic glasses (BMG) exhibit an amorphous structure and possess excellent properties, such as high hardness (∼8 GPa), high elastic and strain limit (∼2 %), and wear/corrosion resistance. Chip formation behavior of BMG during machining is distinct from the crystalline materials, and is not very well understood. Hence, this paper presents experimental and analytical investigations to explore the underlying chip formation mechanism in the micro-cutting of BMG. The experimental study was carried out by analyzing the chip morphology, force signature, and hardness of the workpiece. BMG machining yields segmented chips due to the shear localization. The shear localization is clearly observed in terms of periodic primary shear bands and multiple secondary shear bands. The machined surface also shows work softening due to machining-induced deformation. It has been observed that free volume and the shear zone temperature affect the shear localization, which is reflected in the chip segmentation. A shear localization model has been developed, which includes the effects of new surface creation energy, shear energy, and friction energy. Based on a bifurcation analysis, critical free volume and temperature flow coefficients have been calculated. Based on the critical free volume and temperature flow coefficients, four distinct regimes of shear localization have been identified. The shear localization dampens out if the free volume coefficient is less than the critical free volume flow coefficient. Substantial shear localization is observed if the free volume flow coefficient exceeds the critical value. This study shows that free volume generation primarily drives the chip segmentation and shear localization, and the temperature effects play a secondary role.