The effect of process parameters on micro-EDM namely current (I), voltage (V) and pulse on time (TON) were studied based on Tool Overcut (OC). The effect of Fe2O3 nano-powder mixed dielectric on the overcut for AL6061 alloy was studied using a Die Sinking (EDM) Machine. Effect of the process parameters was examined by 2-Level Factorial Design using Design of Experiment (DOE) software, whereas the level of importance was statistically evaluated using ANOVA. The results indicate discharge current and pulse on time significantly influenced the EDM process compared to voltage. It was also concluded that the use of Fe2O3 nano-powder mixed micro-EDM decreased the overcut values.