A tool changer drum is rotatably mounted on a machine tool for rotation about an axis which is perpendicular to the spindle axis thereof. A plurality of tool changer arms are swingably mounted on the tool changer drum for swinging movement along radii of the drum between a storage position parallel to the central plane of the drum and a transfer position perpendicular to the central plane of the drum. A pneumatic cylinder is used to index the tool changer drum to place any selected tool changer arm in the ready position. Another pneumatic cylinder is used to swing the ready tool changer arm from its storage position to its transfer position to transfer a toolholder from storage to the spindle and later to swing the tool changer arm back to the storage position to return the toolholder to storage. Before the tool transfer operation, the spindle is moved to a tool transfer position in which the swinging movement of the tool changer arm either places a toolholder in the spindle or removes a toolholder therefrom.