A wafer processing method includes a functional layer cutting step of applying a laser beam along each division line formed on a functional layer to thereby ablate the functional layer and form a laser processed groove along each division line. A protective member is attached to the front side of the functional layer. A groove is cut by positioning a cutting blade on the back side of the substrate in the area corresponding to each division line. The cut groove has a depth not reaching the functional layer. A dicing tape is attached to the back side of the substrate to support the outer circumferential portion of the dicing tape to an annular frame. The protective member is peeled off and the dicing tape attached to the back side of the substrate is expanded to increase the spacing between the devices.