This paper presents a finite element-based, computational model for analysis of structural damage to trabecular bone tissues. A modulus reduction method was formulated from elasto-plasticity theory, and was used to account for site-specific trabecular bone tissue damage. Trabecular bone tissue damage is illustrated using a large-scale, anatomically accurate, two-dimensional, microstructural finite element model of a human thoracic vertebral body. Four models with varying specifications for damage accumulation were subjected to compressive loading and unloading cycles. The numerical results and experimental validation demonstrated that the modulus reduction method reproduced the non-linear mechanical behaviour of vertebal trabecular bone. The iterative computational approach presented provides a methodology to study trabecular bone damage, and should provide researchers with a computational approach to study bone fracture and repair and to predict vertebral fragility.