Bone drilling is a common procedure used to create pilot holes for inserting screws to secure implants for fracture fixation. However, this process can increase bone temperature and the excessive heat can lead to cell death and thermal osteonecrosis, potentially causing early fixation failure or complications. We applied a three-dimensional dynamic elastoplastic finite element model to evaluate the propagation and distribution of heat during bone drilling and assess the thermally affected zone (TAZ) that may lead to thermal necrosis. This model investigates the parameters influencing bone temperature during bone drilling, including drill diameter, rotational speed, feed force, and predrilled hole. The results indicate that our FE model is sufficiently accurate in predicting the temperature rise effect during bone drilling. The maximum temperature decreases exponentially with radial distance. When the feed forces are 40 and 60 N, the maximum temperature does not exceed 45 °C. However, with feed forces of 10 and 20 N, both the maximum temperatures exceed 45 °C within a radial distance of 0.2 mm, indicating a high-risk zone for potential thermal osteonecrosis. With the two-stage drilling procedure, where a 2.5 mm pilot hole is predrilled, the maximum temperature can be reduced by 14 °C. This suggests that higher feed force and rotational speed and/or using a two-stage drilling process could mitigate bone temperature elevation and reduce the risk of thermal osteonecrosis during bone drilling.