Saw-toothed chips are formed during machining of hardened steel (H RC ∞ 60–63). This paper presents a new analytical approach for modelling the chip formation mechanism in hard-turning. It has been observed that the chip formation starts with initiation of a crack at the free surface of the workpiece which further propagates towards the cutting edge of the tool. The crack soon ceases to grow at a point where severe plastic deformation of the material exists under higher level of compressive stresses. The chip segment caught up between the tool rake face and the crack is pushed out while the material in the plastic region just below the base of the crack is displaced along the tool rake face thus forming saw-toothed chips. The direction of crack initiation and propagation are predicted using the surface layer energy/strain energy density criterion. The maximum value of surface layer energy, Y emax can be used to evaluate the angle of crack initiation while the strain energy density criterion predicts the corresponding crack propagation angle. Here, the process of chip formation is considered to be a mixed mode crack problem of Mode I and Mode II. The theoretical predictions are verified by the resultant chip contours obtained experimentally. The predictions made are shown to be in good agreement with those measured experimentally.