The basic principle and method of time series analysis and its application in thermal error modeling on NC machine tools were presented. How to utilize the thermal error serials surveyed to identify, model, predict and compensate was discussed in detail. The compensation system was composed of the computer and the controller of machine tool. The controller of machine tool, making use of the compensating values computed by the computer through time series analysis model established, ordered knife rest a additional movement to realize the real time compensation of machine tool thermal errors. The experimental results showed that the sizes variations of the workpieces could be reduced from 25 μm to 10 μm and then the machining precision of machine tool is highly improved. Therefore, the feasibility and validity of time series analysis in the application of thermal error modeling on NC machine tools have been proved.