A method for tool measurement using a non-contact tool setting apparatus mounted to a machine tool, which includes a transmitter for emitting a light beam having a beam width and a receiver for receiving the light beam. The receiver generates a beam intensity signal describing the intensity of received light. The method is for measuring a tool having a nominal tool diameter less than the beam width so fully inserting the tool feature into the light beam would only partially occlude the beam. The method includes moving the tool through the beam thereby causing a change in the intensity signal and generating a trigger signal when the intensity signal crosses a trigger threshold. The tool size is derived using the trigger signal generated. Also, a step of applying a tool length correction that accounts for the nominal tool diameter of the tool being less than the beam width.