Abstract The present paper develops a new method for damage localization and severity estimation based on the employment of modal strain energy. This method is able to determine the damage locations and estimate their severities, requiring only the information about the changes of a few lower natural frequencies. First, a damage quantification method is formulated and iterative approach is adopted for determining the damage extent. Then a damage localization algorithm is proposed, in which a damage indicator is formulated where unity value corresponds to the true damage scenario. Finally, numerical studies and model tests are conducted to demonstrate the effectiveness of the developed algorithm.