Polycrystalline diamond (PCD) is extensively used in the abrasives industry for cutting, drilling and milling due to its outstanding mechanical properties. However, this material suffers from thermal instability when exposed to temperatures above 750°C. This paper investigated the mechanisms of thermal degradation that operate at elevated temperatures in PCD drill bit inserts. Two tests of thermal stability were performed. In the first part of the study thermo-mechanical milling tests were performed on PCD tools. The second part of the study involved a controlled investigation of the chemical changes in the PCD as a function of temperature with the aid of electron microscopy and X-ray diffraction. The experimental results indicated that graphitisation induced cracking occurred in the samples heated to temperatures of 500°C and above during the granite milling test. The formation of η-phase (Co,W)6C in the residual cobalt pools preceded graphite formation in the thermally soaked PCD samples. The formation of the (Co,W)6C was controlled by the diffusion of solid solution tungsten in the cobalt. Graphitic carbon nucleated in the cobalt pools after exposure at 800°C for 30min in argon. This indicated that the temperature at the contact surface of the tool and granite block must have exceeded 800°C during the milling test.