Virtual manufacturing systems carry out the simulation of manufacturing processes in digital environment in order to increase accuracy as well as productivity in part production. There are different error sources in machine tools, such as tool deflection, geometrical deviations of moving axis, and thermal distortions of machine tool structures. The errors due to tool deflection are caused by cutting forces and have direct effects on dimensional accuracy, surface roughness of the parts, and efficient life of the cutting tool, holder, and spindle. This paper presents an application of virtual machining systems in order to improve the accuracy and productivity of part manufacturing by monitoring and minimizing the tool deflection error. The tool deflection error along machining paths is monitored to present a useful methodology in controlling the produced parts with regard to desired tolerances. Suitable tool and spindle can also be selected due to the ability of error monitoring. In order to minimize the error, optimization technique based on genetic algorithms is used to determine optimized machining parameters. Free-form profile of virtual and real machined parts with tool deflection error is compared in order to validate reliability as well as accuracy of the software.