A structure’s level of damage is determined using a non-linear model-based method utilising a Bouc-Wen hysteretic model. It employs adaptive Least Mean Squares (LMS) filtering theory in real time to identify changes in stiffness due to modelling error damage, as well as plastic and permanent displacements, which are critical to determining ongoing safety and use. The Structural Health Monitoring (SHM) method is validated on a four-story shear structure model undergoing seismic excitation. For the simulated structure, the algorithm identifies stiffness changes to within 10% of the true value in 0.20 s, and permanent deflection is identified to within 5% of the actual as-modelled value using noise-free simulation-derived structural responses.