Sensor-based monitoring of process and tool condition in milling is a key technology for improving productivity and workpiece quality, as well as enabling automation of machine tools. However, industrial implementation of such monitoring systems remains a difficult task, since they require high sensitivity and minimal impact on CNC machines and cutting conditions. This paper presents a novel multi-sensory tool holder for measurement of process forces and vibrations in direct proximity to the cutting tool. In particular, the sensor system has an integrated temperature sensor, a triaxial accelerometer and strain gauges for measurement of axial force and bending moment. It is equipped with a self-sufficient electric generator and wireless data transmission, allowing for a tool holder design without interfering contours. Milling and drilling experiments with varying cutting parameters are conducted. The measurement data are analyzed, pre-processed and verified with reference signals. Furthermore, the suitability of all integrated sensors for detection of dynamic instabilities (chatter) is investigated, showing that bending moment and tangential acceleration signals are the most sensitive regarding this monitoring task.