Grinding Exterior Keyway
Use cutoff grindger wheel and guide, then use a dremel to clean up:
Brute force with grinder:
Summary of grinder route:
- Use cutoff grinder wheel with guide to make the sides. Use a guide clamped on the shaft. This provides the straight, vertical edge
- Use a larger grinder wheel to bore out between the sides.
Internal with Grinder
- Doesn't really exist.
- Use a reciprocating broach, or parting tool blade if you don't have a broach
- Or, get creative:
- We can hack this by making a 'through keyway'. Does it exist? Closest is this - 
- Concept of through keyway - create an inner keyway - from the outside! By going all the way through
- Arbor press and broach is the industry standard.
- Keyway broaches add cost - $40 for a single broach 
- Simply mount a needle file on a Universal Axis - based reciprocator, and let it CNC all night long to make a perfect keyway very slowly. With 10 micron step size, this should not be a problem. Working out functional parameters would be a good project for a student. Needle files: 
- The above is inspired by this:
- Can we find a tiny angle drill?
- Harbor Freight 3/8" drill attach. If take off right angle chuck, may have a way to mount grinding disc.