<p>In micro-electric discharge machining (µ-EDM), plasma-induced heating generates residual stresses, and cracks form when their magnitude surpasses the material’s ultimate strength. Therefore, investigating the magnitude, nature, and distribution of these stresses is crucial to ensure the structural integrity and performance of µ-EDM-processed components. In the present work, an attempt has been made to predict the temperature distribution and the resulting thermal stresses developed during the µ-EDM process. To achieve this, an FEM model was developed using coupled heat transfer and computational solid mechanics. The novel approach of this study incorporates the plasma pressure effects in the model, which play a significant role in inducing plastic deformation during the µ-EDM process. To represent the material's mechanical behavior accurately, a bilinear hardening plasticity model was employed. The simulation was performed for a single discharge to investigate the resulting thermal and mechanical responses. The numerically predicted result was compared with experimental results using the AISI 1080 Steel as the workpiece material. The simulated stress distribution closely follows the trend observed experimentally, demonstrating good agreement between the model and the measurements. It was observed that compressive stress dominates within the spark radius zone, whereas both compressive and tensile stresses are present in the heat-affected zone.</p>