Rotary ultrasonic machining (RUM), a hybrid machining process that combines diamond grinding and ultrasonic machining, has been utilized as a cost-effective material removal method for hard-to-machine materials such as advanced ceramics. In this study, the stress and deformation fields in a ceramic workpiece (92% Al2O3) and the formation of edge chipping during RUM process are investigated using finite element method. Based on a simplified model of RUM process, a three-dimensional finite element model is constructed using axisymmetric eight-node quadrilateral element. In the finite element model, the areas of the workpiece bottom surface that are in contact with the fixture are defined as boundaries of zero displacement in normal direction. A static load is applied to the cutting zone, which is the contact area between the tool’s end face and the bottom surface of the machined slot in the workpiece. The value of the load is calculated from experimental measurements using a dynamometer. Using this model, the maximum von Mises stresses are computed. Initiation and location of the crack, which leads to chipping in RUM process, are also analyzed and compared with experimental results observed under a microscope.