Microstructure of martensite steel near drill hole surface was investigated. The microstructure of drill hole surface can be divided into 3 layers with depth. From top surface, nanocrystalline layer, equiaxed submicron grain layer and deformed martensite structure layer. Nano-grained layers have extremely high hardness, similar to those observed in the specimens treated by shot peening, ball milling, ball drop and particle impact deformation. The measured amount of shear strain produced by drilling was found to be an exponential function of depth from the hole surface. The amount of true strain at the hole surface region was estimated to exceed 7 which is considered to be the necessary amount of strain to produce nanocrystalline structure.