A new method for on-line chatter detection is presented. The proposed method characterizes the significant transition from high dimensional to low dimensional dynamics in the cutting process at the onset of chatter. Based on the likeness of the cutting process to the nearly-1/f process, this wavelet-based maximum likelihood (ML) estimation algorithm is applied for on-line chatter detection. The presented chatter detection index γ is independent of the cutting conditions and gives excellent detection accuracy and permissible computational efficiency, which makes it suitable for on-line implementation. The validity of the proposed method is demonstrated through the tests with extensive actual data obtained from turning and milling processes.