Many civil and mechanical engineering structures exhibit nonlinear hysteretic behavior when subject to dynamic loads. The modeling and identification of non-linear hysteretic systems is a practical but challenging problem encountered in the engineering field. To overcome such a challenge, this book proposes the application of a reduced-order finite element model in conjunction with a recently proposed damage detection technique, referred to as the adaptive quadratic sum-square error with unknown inputs (AQSSE-UI). The identification process is divided into two steps: 1) static condensation technique is used to reduce the order of the equations of motion of the finite-element model; 2) AQSSE-UI is used for the on-line system identification and damage detection of the reduced order system. The proposed approach is capable of identifying time-varying parameters of linear or nonlinear hysteresis structures. The capability of the proposed damage detection technique is demonstrated by shake table test on three large-scale structures at NCREE, Taiwan.