This study proposes a new method for the immediate fault warning and fault root tracing of CNC lathes. Here, the information acquisition scheme was formulated based on the analysis of the coupling relationship between the mechanical parts of CNC lathes. Once the collected status signals were de-noised and coarse-grained, transfer entropy theory was introduced to calculate the net entropy of information transfer between the mechanical parts, after which the information transfer model was constructed. The sliding window method was used to determine the probability threshold interval of the net information transfer entropy between the lathe mechanical parts under different processing modes. Therefore, the transition critical point was determined according to the information entropy, and the fault development process was clarified. By analyzing the information transfer changes between the parts, fault early warning and fault root tracking on the CNC lathe were realized. The proposed method realizes the digitalization and intelligentization of fault diagnosis and has the advantages of timely and efficient diagnosis. Finally, the effectiveness of the proposed method is verified by a numerical control lathe tool processing experiment.