Abstract: The main purpose of this work is to develop an innovative system for structural health monitoring of aerospace composite structures based on real‐time dynamic strain measurements. The dynamic response of a composite panel, which represents a section of a typical aeronautical structure, is measured using fibre Bragg grating (FBG) dynamic sensors. Damage is simulated by slightly varying locally the mass of the panel at different zones of the structure. A finite element model of the structure has been developed to simulate the dynamic behaviour based on the modal superposition principle. The numerical model was calibrated against experimental results, and it was used for the placement of the FBG sensors. The proposed damage detection algorithm utilises the collected dynamic response data, and through various levels of data processing, an artificial neural network identifies the damage size and location. Feature extraction is the first step of the algorithm. Novel digital signal processing techniques, such as the wavelet transform, are used for feature extraction. The extracted features are effective indices of damage location and its extension. The classification step comprises a feed‐forward back propagation network, whose output determines the simulated damage location. Finally, dedicated training and validation activities are carried out by means of numerical simulations and experimental procedures.