ABSTRACT In this study, the damage identification procedure combining the advantages of high-speed 3D digital image correlation (DIC) that is used for modal analysis and wavelet-based processing algorithm is presented. The proposed procedure has been successfully validated on sandwich composite structures with internal damage of a core and impact damage, and its performance was demonstrated by detection, localisation, and identification of shapes of damage in tested structures, comparable to the results from scanning laser Doppler vibrometry (SLDV). The effectiveness in damage identification was achieved by the development of processing algorithm of acquired mode shapes, which uses a 2D double-density directional wavelet transform with increased sensitivity with entropic weights allowing to automatically select those wavelet coefficients and mode shapes, which are most sensitive to damage. The procedure presented in this paper demonstrates the performance of 3D DIC for damage identification as a cost-effective alternative to the procedures based on SLDV measurements.