Full-field mapping of displacements between successive images by digital image correlation is a powerful and well-established technique, used in fields as diverse as geo-tectonics, engineering mechanics, and materials science. Analysis of three-dimensional images, such as computed x-ray tomographs, is also becoming routine. These techniques provide new ways to study and quantify deformation and failure processes; recently, they have been applied to detect and study cracks and defects in engineering materials, for instance, by coupling the displacement analysis with finite-element codes to readily extract the crack propagation strain energy release rate (J-integral). Such analyses increase the richness of the data obtained, for example, providing information on the mode of loading and are suitable for the analysis of engineering components under complex states of stress. This work has highlighted areas where the development of image-correlation methods that are optimized for analysis of discontinuities would be beneficial for better detection of small cracks and the early development of damage against the background displacement field, improved precision in crack-displacement field measurement by intelligent “masking” or analysis algorithms, and better integration with finite-element software packages to make use of advanced tools for 2D and 3D deformation analysis. This paper reviews some of this recent work on the analysis of 2D and 3D damage in engineering materials, and describes developments in quantitative analysis of defects by image correlation. The examples covered include brittle crack propagation in nuclear graphite, fatigue loading in magnesium alloys, and indentation damage in brittle and ductile materials.