The inverse finite element method (iFEM) is a deformation reconstruction (shape sensing) algorithm developed for structural health monitoring applications [1]. In the mathematical aspect, the iFEM is a least-squares variational principle that minimizes the error between experimental strains (i.e., obtained from sensors) and numerical strains (i.e., calculated via finite elements). On the other hand, peridynamics (PD) is the reformulation of classical continuum mechanics by considering nonlocal interactions of the material points. PD equations can be readily solved through meshless discretization and can be effectively applied to materials/structures with/without structural discontinuous such as cracks, voids, etc. However, the iFEM methodology itself is not suitable for crack/fracture monitoring through sensors as it requires a mesh-dependent solution. In this study, the advantages of the PD in terms of modelling cracks are brought into the iFEM approach by creating a fully unified iFEM-PD framework [2]. To this end, real-time deformations predicted by iFEM are applied to the PD particles embedded in the inverse elements as boundary conditions during SHM simulation. As a result, the coupled iFEM-PD model enables one to monitor displacements, strains, stresses, and cracks using only experimental sensor measurements. As a case study, the application of the coupled iFEM-PD system is made to crack size estimation of isotropic and orthotropic plates under dynamic loads. Comparing the reference (forward analysis) results with the iFEM-PD estimations demonstrated that the proposed model can accurately follow the crack growth and measure the size of moving cracks using only strain sensor data. Hence, the iFEM-PD model can be suitably used to generate full-field experimental solutions of mechanical tests in a laboratory environment or alternatively be a reliable candidate for real-time SHM systems if integrated into large-scale structures.