A pellet making machine used in a pellet producing process has a rotary cutter mounted to the outer periphery of a hollow rotary shaft. A fixed blade is disposed opposite to the rotary cutter, and a pellet exhaust chute is disposed below the rotary cutter and slopes downwardly therefrom. The rotary cutter is provided with an interior cooling chamber and the hollow rotary shaft is provided with water inflow holes and exhaust holes communicating with the cooling chamber of the rotary cutter. A water supply tube extends into the hollow rotary shaft and is supported within the shaft by a partition wall, which also forms a water supply passage communicating with the water inflow holes of the hollow rotary shaft and a water exhaust passage communicating with the water exhaust holes of the hollow rotary shaft. A bad pellet drop cylinder is disposed along the sloping face of the pellet exhaust chute, and a guide cover is pivotably mounted for opening and closing movement on the upper entrance of the bad pellet drop cylinder.