A DDM (displacement discontinuity method) program coupled with a modified energy criterion is used to simulate the development of cracks and chips by indentation tools. In our analysis a cavity model is applied to represent the expansion of crushed rock to the surrounding rock and the cracks are formed in two-dimensional and quasi-static conditions. The model parameters, rock properties and load magnitudes are varied in the numerical calculations. The results show that chips are formed by multiple mechanisms of either tension or shear, or their combinations. The cracks may either propagate to the free surface to form chips or rest in the rock subsurface. The crack development is dependent upon rock and fracture properties, loading force and tool characteristics. The DDM is a convenient tool in the study of rock fragmentation and cracks.