Diamond coating has many excellent properties such as extreme hardness, high elastic modulus, high thermal conductivity, low friction coefficient, low thermal expansion coefficient, and good corrosion resistance. Those properties are close to natural diamond’s, thereby making the diamond coating an ideal new type of wear-resistant tool coating material. However, a large number of experiments have proved that during the deposition of diamond coating, the bonding phase cobalt on the surface of impregnated diamond substrate will generate a layer of graphite at the interface, which seriously weakens the adhesive strength between the substrate and the coating. To thoroughly solve this problem, it is necessary to investigate the microscopic process of graphitization caused by the Co element embedded on the substrate surface. Therefore, the first principle theory is adopted to simulate and analyze the interfacial adhesive strength of diamond coating when Co atom is embedded at different depths on the surface of impregnated diamond substrate, thereby exploring the mechanism of the influence of bonding phase Co element in the substrate on the diamond coating and the mechanism of Co promoting diamond graphitization. The calculation results show that the interfacial binding energy first decreases and then increases with the increase of Co embedding depth in the substrate. When Co atom is embedded in the third layer, obvious graphite structures are prone to appear at the interface, and Co promotes diamond graphitization most significantly, resulting in the minimum bonding strength between the film and substrate interface. The results of structure and charge indicate that under the influence of surface effect and Co—C bond length, the C atoms in the second layer of the substrate move to the first layer and the hybridization mode changes from sp3 to sp2. Meanwhile, this movement leads to an increase in the interaction space and quantity between Co atoms and the surrounding C atoms. In addition, there are many unpaired electrons in the Co valence layer, which can easily mix and rearrange electron orbitals with the surrounding C atoms, ultimately resulting in a graphite structure on the substrate surface. When Co atoms are embedded in the fifth layer, the stable configuration of the substrate surface and the interfacial adhesive strength are no longer affected.