Your Toolmaker's workshop has to have a warehouse and an Iron smelter within it's radius. Click on the Toolmaker's workshop and you'll see it's radius area in a big circle, if you don't have a warehouse and an Iron smelter in that radius I don't think it'll produce any tools. Likewise, your Iron smelter has to have a warehouse and an Ore mine in it's radius, so click on the Iron smelter to check it's range. I tend to find that building them all within very close proximity of each other is best (using a market building, rather than the docks warehouse). See this screenshot below:
http://i29.tinypic.com/30ho9wh.jpg
You'll notice the Ore mine on the left, and the warehouse, Iron smelter and Toolmaker's workshop all bunched up to provide to each other (there's also a Stonemason's hut there as I have a Stone mine close by).