Design and application of hardware-in-the-loop simulation (HILS) for design of CNC-controlled machine tool feed drives is discussed. The CNC machine tool is a complex mechatronics system where the complexity results from the software-based controller composed of a variety of functionalities and advanced control algorithms. Therefore, using a real CNC controller in the control simulation has merits considering the efforts and accuracy of the simulation modeling. In this paper challenges in HILS for a CNC controlled feed drive, such as minimization of time delay and transmission error that are caused by discretization of the feed drive model, is elaborated. Using an experimental HILS setup of a machine tool feed drive applications in controller gain selection and CNC diagnostics are presented.