A tool holder for use in a rotating spindle of a milling machine. The tool holder comprises a conically tapered shank portion for insertion into the spindle and a cutting tool mounting portion. Disposed between the shank and mounting portions is a flange portion. The flange portion includes a continuous channel formed therein which circumvents the shank portion and is adapted to accommodate a dampening member. The dampening member is compressible between the flange portion and the spindle when the tool holder is inserted into the spindle, and is adapted to eliminate harmonic resonance attributable to the use of the tool holder with a cutting tool.