Abstract: A compression tool holder for use with deburring tools or the like, the tool holder having a cylindrical outer housing adapted to be inserted into a chuck of a rotary drive machine. A tool holding rod is axially slidably mounted in a cylindrical recess formed in the tool holder. A spring loaded piston is mounted behind the rod and urges the rod to its extended position. A cap member, however, defines the limit of the extended position for the rod. The rod has an outside diameter somewhat smaller than the inside diameter of the cylindrical recess in the tool holder so that the rod may compensate for misalignment by pivoting relative to the housing within the cylindrical bore, utilizing the cap member as the fulcrum point for its pivot. The end surface of the piston coacts with the end surface of the tool holding rod so as to return the tool holding rod to a central aligned position when misalignment compensation is not required.