Minimum hole size in 1/8" aluminum?

I think @Agent86 reference above is a good one and might give you what you need. For my part, I don’t try to cut accurate holes below 5/8", mainly because I don’t have to. In your case, where you’re in production, maybe it’s necessary.

In my case, however, what I want is accurately positioned holes and, to do that, I simply burn a mark in the plate using the same CNC system as the rest of the piece. To burn a mark I do all ‘holes’ first and I do these with a 20A nozzle, run the cutter at 15 Amps (my cutter’s minimum), 35PSI, cut height of 0.093", and pierce delay/time of between 150 to 250 mS depending on material. This gives me a very nice and accurately positioned ‘peck’ in the material. I use this ‘peck’ to subsequently drill this hole on a drill press. Very accurately positioned and perfectly sized hole. Extra operation? Yup, but I can’t get a better hole and still gain the benefits of a CNC Plasma cutter. BTW, after all the ‘holes’ are pecked, I use G-Code to do a ‘tool change’ and replace the nozzle with the proper cutting nozzle for the rest of the job.
Just an alternate idea…

FWIW, I should add that I’ve cut 1mm holes this way, accurately positioned and sized.

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