In the past five years, several industrial initiatives such as “Industry 4.0”, “Industrial Internet of Things”, “Factories of the Future” and “Made in China 2025”, have been announced by different governments and industrial leaders. These initiatives lead to an urgent need to advance current manufacturing systems into a high level of intelligence and autonomy. As the main component of any manufacturing system, machine tools have evolved from manually operated machines into the current computer numerically controlled (CNC) machine tools. It is predicted that current CNC machine tools are not intelligent and autonomous enough to support the smart manufacturing systems envisioned by the aforementioned initiatives. Inspired by recent advances in ICT such as Cyber-Physical Systems (CPS) and Internet of Things (IoT), this paper proposes a new generation of machine tools, i.e. Machine Tool 4.0, as a future development trend of machine tools. Machine Tool 4.0, otherwise known as Cyber-Physical Machine Tool (CPMT), is the integration of machine tool, machining processes, computation and networking, where embedded computers and networks can monitor and control the machining processes, with feedback loops in which machining processes can affect computations and vice versa. The main components and functions of a CPMT are presented. The key research issues related to the development of CPMT are identified and discussed. A three-layer CPMT-centered Cyber Physical Production System (CPPS) is proposed to illustrate both the vertical integration of various smart systems at different hierarchical levels and the horizontal integration of field-level manufacturing facilities and resources.