Spindle vibration of machine tools causes premature tool wear and deterioration of machining accuracy. The vibration of machine tool spindles changes depending on the used tooling system and the rotational speed during various machining operations. Therefore, it is required to realize a real-time balancing mechanism for achieving high accuracy and efficiency machining. In this study, in order to reduce unbalance response of machine tool spindles, a smart spindle with a real-time balancing mechanism using magnetic fluid is proposed. The magnetic fluid is enclosed inside the spindle, and the distribution of the circumferential mass is actively controlled. A small test spindle with the real-time balancing mechanism was developed. The experimental results proved the feasibility of the proposed real-time balancing mechanism of machine tool spindles. By applying the obtained results, a machine tool spindle with the real-time balancing mechanism is developed in this report.