The applications of the Carbon fiber reinforced polymer (CFRP) composites in the modern industries are extensive for improving the performance of the vehicle / machinery by reducing the weight without compromising its strength. Drilling is a mandatory operation required to assemble the composite laminates, where the quality of the hole drilled is significant to make sure the joint strength. However, the drilling of CFRP composite is quite challenging because of its heterogeneity, abrasive nature and anisotropic mechanical properties. The drilling of CFRP composite need adequate understanding on selecting the right machining parameter setting to attain expected surface finish and hole quality. But, the drilling operation is mainly affected by the selected process parameters like tool material, cutting velocity, hole diameter and feed. The main objective of this research work is developing a realistic full 3D Finite Element Model (3D FEM) using ABAQUS to investigate the effects of process parameters on critical thrust force, stress, chip morphology, predicting the modes of failure of the matrix and composite. Investigation on the drilling operation is carried out using 3D FEM simulation and experimental drilling. These results were correlated and the 3D FEM was validated to ensure its accuracy and reliability. From the investigation it is found that, the machining parameters influences more on the critical thrust forces and chip morphology. The developed 3D FEM efficiently simulates the tool motion and it also estimates the critical thrust force, chip characteristics and modes of failure of the matrix and fiber material in unidirectional CFRP (UD-CFRP) which are the main contribution of the current research. The Scanning Electron Microscopic images of the drilled chips are also presented to reveal the failure modes of matrix and fiber at microscopic level.