The objective of this paper is to understand through parametric studies the effect of microstructural parameters, viz., the carbon nanotube (CNT) orientation with respect to the cutting direction, CNT loading, and level of dispersion within the matrix on the machinability of aligned CNT composites. To this end, a microstructure-based finite element machining model is used to simulate microstructures containing 1.5% and 6% by weight of CNTs. Microstructures with both uniform and nonuniform dispersions of CNTs are simulated. For each of these cases, CNTs having orientations of 0 deg, 45 deg, 90 deg, and 135 deg to the cutting direction are studied. The machining simulations were conducted using a positive rake tool. Chip morphology, cutting forces, surface roughness, and surface/subsurface damages are the machinability measures used for comparison. The results of the parametric studies demonstrate that the CNT orientation, loading, and level of dispersion all play a critical role in dictating the machining response of aligned composites. The results further indicate that the surface morphology of the machined surface can be harnessed to produce the next generation of microfluidic devices. This application demonstrates the feasibility of designing the microstructure of CNT composites by taking into account both their engineering functionality and machinability.