Drilling is a major process in the manufacturing of holes required for the assemblies of composite laminates in aerospace industry. Simulation of drilling process is an effective method in optimizing the drill geometry and process parameters in order to improve hole quality and to reduce the drill wear. In this research we have developed three-dimensional (3D) FE model for drilling CFRP. A 3D progressive intra-laminar failure model based on the Hashin's theory is considered. Also an inter-laminar delamination model which includes the onset and growth of delamination by using cohesive contact zone is developed. The developed model with inclusion of the improved delamination model and real drill geometry is used to make comparison between the step drill of different stage ratio and twist drill. Thrust force, torque and work piece stress distributions are estimated to decrease by the use of step drill with high stage ratio. The model indicates that delamination and other workpiece defects could be controlled by selection of suitable step drill geometry. Hence the 3D model could be used as a design tool for drill geometry for minimization of delamination in CFRP drilling.