The aim of the present study is to propose a procedure for seismic cracking identification of concrete dams using a coupling of the extended finite element method (XFEM) based on cohesive crack segments (XFEM-COH) and continuous wavelet transform (CWT). First, the dam is numerically modeled using the traditional finite element method (FEM). Then, cracking capability is added to the dam structure by applying the XFEM-COH for concrete material. The results of both the methods under the seismic excitation have been compared and identified to damage detection purposes. In spite of predefined damage in some of the structural health monitoring (SHM) techniques, there is an advantage in the XFEM model where the whole dam structure is potentially under damage risk without initial crack, and may not crack at all. Finally, in order to evaluate any change in the system, that is, specification of any probable crack effects and nonlinear behavior, the structural modal parameters and their variation have been investigated using system identification based on the CWT. The results show that the extended finite element–wavelet transform procedure has high ability for the online SHM of concrete dams that by analysis of its results, the history of physical changes, cracking initiation time, and exact damage localization have been performed from comparing the intact (FEM) and damaged (XFEM) modal parameters of the structural response. In addition, any small change in the system is observable while the final crack profile and performance simulation of the dam body under strong seismic excitations have obtained.