Precise tool length measurement and work coordinate setup have been challenging tasks in ultra-precision machining. An acoustic emission (AE) sensor can be used to do both tasks at the same time based on AE generated on contact. First, a parametric study was conducted to identify the relationship between damage on the workpiece and key parameters. Second, two approaches, continuous and incremental, were proposed to minimize the potential damage to the workpiece surface. The incremental method produced much smaller damage while the continuous method minimized the setup time. Proper selection of either method depending on the application would improve the precision of tool length and work coordinate setup.