One of the traditional optical methods to monitor a tool is a CCD sensor-based vision system which captures an aspect of the tool in real time. In the case using the CCD sensor, specific lensmodules are necessary to monitor the tool with higher resolution than its pixel size, and a microprocessor is required to attain desired data from captured images. Thus theses additional devices make the entire measurement system complex. Another method is to use a pair of an optical source and a detector per measuring axis. Since the method is based on the intensity modulation, the structure of the measurement system is simper than the CCD sensor-based vision system. However, in the case measuring the three dimensional position of the tool, it is difficult to apply to micro machine-tools because there may not be space to integrate three pairs of an optical source and a detector. In this paper, in order to develop a tool-origin measurement system which is employed in micro machine-tools, the improved method to measure a tool origin in x, y and z axes is introduced. The method is based on the intensity modulation and employs one pair of an optical source radiating divergent beams and a quadrant photodiode to detect a three dimensional position of the tool. This paper presents the measurement models of the proposed tool-origin sensor. The models were verified experimentally. The verification results show that the proposed method is possible and the induced models are available for design.