This paper reviews the nature of hole defects and postulates the cause of hole defects resulting from the drilling process of carbon fiber reinforced plastic–titanium alloy stacked panels (CFRP–Ti stacks) using tungsten carbide (WC) and polycrystalline diamond (PCD) twist drills. The parameters that describe the hole quality of the CFRP–Ti stacks include CFRP entry hole delamination, hole diameter and roundness, inner hole surface roughness, CFRP hole profile, CFRP–Ti interplate damage, and Ti exit burr. They are caused by heat generation during drilling as well as hot Ti chips and adhesion, Ti burr formation, tool instability, and tool geometry change due to tool wear. For the WC drills, large flank wear and margin wear occurred at the high spindle speed condition, resulting in a reduction of the hole size and an increase of the hole roundness and CFRP–Ti interface damage. At the low spindle speed condition, tool geometry was changed due to the large edge rounding. This resulted in large fiber pull-out at the CFRP hole surface. Ti entry burrs caused damage associated with fiber removal and matrix discoloring at the bottom of the CFRP panel and this interplate damage was observed to increase with tool wear. When compared with the WC tool at the same speed condition, the PCD drill maintained relatively small hole defects under all parameters.