This paper describes the development of a new hybrid polishing tool, which consists of magnetic particles and a water-soluble binder and transforms from a bonded-tool phase to a particle-brush phase during polishing. During the bonded-tool phase, the binder remains intact, and material is removed from the peaks of the target surface where abrasive is pressed against the surface. Once the binder dissolves in the lubricant, the magnetic particles separate, form a brush tool (particle-brush phase), and polish the surface while conforming to the surface geometry. The phase transition timing is determined by the lubricant type. The magnetic particles can be collected using magnetic force and reused; the hybrid tool thus contributes to resource utilization and waste reduction. The effects of tool geometry, tool binder content, and lubricant type on the tool-phase transformation and polishing characteristics are clarified by applying the new hybrid tool to internal finishing of stainless steel tubes, made using directed energy deposition, using magnetic abrasive finishing (MAF). MAF mechanically removes material by the action of abrasives pressed against a workpiece with magnetic tools suspended in a magnetic field. Compared with conventional MAF, the hybrid tool achieves a target surface finish with significantly less material removal, minimizing waste production.