In this study, the effect of compaction pressure on the properties of AISI 316L and its machining performance was evaluated. AISI 316L powders were subjected to three different compaction pressures (550, 650, and 750 MPa). Subsequently, the samples were sintered in an argon atmosphere at a constant temperature of 1523.15 K. The microstructure, hardness, and mechanical properties of the materials were investigated. To examine the effect of compaction pressure on drilling characteristics (thrust force, torque, surface roughness, chip formation, and burr formation), the samples were subjected to dry drilling at different feed rates and cutting speeds. It was observed that increasing the compaction pressure resulted in smaller grain sizes in the microstructure, increased hardness, and higher tensile strength. Higher compaction pressure led to higher thrust force and torque, whereas lower compaction pressure resulted in improved hole surface quality and shorter chips. Additionally, at higher cutting speeds, the color of the chips changed due to the elevated temperatures associated with increased cutting speeds.