An ultrasound bone cutting instrument with dynamic tissue characterization comprises a central control unit configured for generating low frequency and high frequency output signals and for receiving return signals, a hand-held probe containing an array of transducers and a preprocessing circuit, the transducers configured for converting the output signals into low frequency and high frequency ultrasound energy and for converting a portion of the ultrasound energy reflected from tissue areas in a target area into the return signals, and a cutting tip for cutting bone in the target area, wherein the central control unit is configured for determining characteristics of the tissues being approached by the cutting tip in response to the return signals.