Cutting force in lathe work is closely related to tool wear and affects the turning quality. Direct measurement of the cutting force by measuring the strain of the tool holder is challenging because the tool holder design aims to be highly rigid in order to undertake large cutting forces. Accordingly, the most popular dynamometer designs modify the standard tool holder by decreasing the structural rigidity of the holder, which reduces the machining precision and is not widely accepted. In order to solve the issue of the low stiffness of the dynamometer reducing the machining precision, in this paper, the ultra-low strain on the tool holder was successfully detected by the highly sensitive semiconductor strain gauges (SCSG) adjacent to the blade cutting insert. However, the cutting process would generate much heat, which increases the force measuring area temperature of the tool holder by about 30 °C. As a result, the readout drifted significantly with the temperature changes due to the high temperature coefficient of SCSG. To solve this problem, the temperature on the tool holder was monitored and a BP neural network was proposed to compensate for temperature drift errors. Our methods improved the sensitivity (1.14 × 10−2mV/N) and the average relative error of the BP neural network prediction (≤1.48%) while maintaining the original stiffness of the tool holder. The smart tool holder developed possesses high natural frequency (≥6 kHz), it is very suitable for dynamic cutting-force measurement. The cutting experiment data in the lathe work show comparable performance with the traditional dynamometers and the resolution of the smart tool holder is 2 N (0.25% of total range).