Tolerance measure is an important part of engineering, however, to date the system of applying this important technology has been left to the assessment of the engineer using appropriate guidelines. This work offers a major departure from the trial and error or random number generation techniques that have been used previously by using a knowledge-based system to ensure the intelligent optimisation within the manufacturing system. A system to optimise manufacturing tolerance allocation to a part known as Knowledge-based Automatic Tolerance Analysis (KATA) has been developed. KATA is a knowledge-based system shell built within AutoCAD. It has the ability for geometry creation in CAD and the capability to optimise the tolerance heuristically as an expert system. Besides the worst-case tolerancing equation to optimise the tolerance allocation, KATA's algorithm is supported by actual production information such as machine capability, types of cutting tools, materials, process capabilities etc. KATA's prototype is currently able to analyse a cylindrical shape workpiece and a simple prismatic part. Analyses of tolerance include dimensional tolerance and geometrical tolerance. KATA is also able to do angular cuts such as tapers and chamfers. The investigation has also led to the significant development of the single tolerance reference technique. This method departs from the common practice of multiple tolerance referencing technique to optimise tolerance allocation. Utilisation of this new technique has eradicated the error of tolerance stackup. The retests have been undertaken, two of which are cylindrical parts meant to test dimensional tolerance and an angular cut. The third is a simple prismatic part to experiment with the geometrical tolerance analysis. The ability to optimise tolerance allocation is based on real production data and not imaginary or random number generation and has improved the accuracy of the expected result after manufacturing. Any failure caused by machining parameters is cautioned at an early stage before an actual production run has commenced. Thus, the manufacturer is assured that the product manufactured will be within the required tolerance limits. Being the central database for all production capability information enables KATA to opt for several approaches and techniques of processing. Hence, giving the user flexibility of selecting the process plan best suited for any required situation.