The invention relates to cutting work, in particular to a machining device and method of oil grooves inside a shaft sleeve. The machining device of the oil grooves inside the shaft sleeve comprises a knife rest on a lathe, a machining knife and a knife rest rod used for fixing the machining knife, wherein the knife rest rod is connected with the knife rest and is parallel with the axis direction of the shaft sleeve on the lathe, the machining knife is perpendicular to the axis of the knife rest rod and comprises a knife body and a knife head, the knife head comprises a radial oil groove turning plane parallel with the axis of the knife rest rod and a planing plane perpendicular to the axis of the knife rest rod, the radial oil groove turning plane and the planing plane are located at two sides of the knife body respectively, a turning edge is arranged at the edge of the radial oil groove turning plane, and a planing edge is arranged at the edge of the planing plane. The machining device of the oil grooves inside the shaft sleeve has the advantages of being capable of achieving radial cutting and axial cutting without replacing the machining knife, being simple to operate, shortening the machining cycle and the like.