The final step in the design of a microprocessor before actual fabrication in silicon (or other media.) Since the late 1970s and/or 1980s the making of the mask-works for microprocessors has been an essentially automated process as compared to early semi-manual processes, carried out using design tools that match the design rules of the particular fabrication process.
Chip designers work by initially creating a high level description of the device using HDL (a Hardware Description Language) such as VHDL or Verilog, which describes in functional terms the components of the processor. Using design tools this is then converted to a database format such as GDSII (short for GDS II Stream Format) or the more modern OASIS, which describe in database format the physical elements (i.e., as geometrical elements, labels, etc.) the microprocessor; it is this conversion process that is called “tape-out.” This is because the usual result was a magnetic tape that was then sent for fabrication in a chip foundry. Although magnetic tape is now anachronistic the term has remained in common usage.
Tape out is usually both an occasion for celebration and regarded as a key commercial event in the process of designing a chip, which may show up in many agreements as a key stage for funding, payment, etc.