The objective of this study is to develop a highly accurate micro tool alignment system applicable to the micro machining technology. In a specific application such as micro hole punching, radial clearance between micro tools is order of a few micron. Under this micron scale tool clearance, accuracy of tool alignment is very important for ensuring hole quality. In the present study, a two-way image acquisition system was developed, which can produce overlapped image of both micro tools that face each other, and applied to the tool alignment in the micro punching. Also, to meet alignment accuracy of tools within $1mu extrm{m}$, the cross correlation image processing algorithm was employed. With this system, $25mu extrm{m}$ punching tools with $1mu extrm{m}$ radial clearance could be accurately aligned.