This paper presents a combined experimental and computational investigation of a novel material separation mechanism in polycrystalline diamond (PCD) substrates. A hybrid CO2 laser/waterjet (CO2-LWJ) machining system that combines a CO2 laser for localized heating and an abrasive-free waterjet to rapidly quench the heated area is utilized for cutting experiments on PCD substrates. Scanning electron microscopy (SEM) and micro-Raman spectrometry characterization performed on the cut surfaces show that cut surfaces were divided into two zones—a thin transformed zone near the top where the PCD grains have transformed to graphite and diamond-like carbon; and a fracture zone with the same composition as-received substrate. The experimental results indicate that the PCD substrates were cut through a “score and snap” mechanism—laser heating leads to localized damage and phase transformation of surface layers; and subsequently, stress fields developed due to constrained expansion of transformed material and waterjet quenching act on the laser made “score” to propagate crack through the thickness. Analytical solutions for thermal diffusion and force equilibrium are used to determine the temperature and stress fields in the PCD substrate during CO2-LWJ cutting. Fracture mechanics analysis of crack propagation is performed to demonstrate the feasibility of the “score and snap” mechanism for cutting of PCD substrates.