Fragility functions are commonly used in performance-based earthquake engineering for predicting the damage state of a structure subjected to an earthquake. This process often involves estimating the structural damage as a function of structural response, such as the story drift ratio and the peak floor absolute acceleration. In this paper, a new framework is proposed to develop fragility functions to be used as a damage classification/prediction method for steel structures based on a wavelet-based damage sensitive feature (DSF). DSFs are often used in structural health monitoring as an indicator of the damage state of the structure, and they are easily estimated from recorded structural responses. The proposed framework for damage classification of steel structures subjected to earthquakes is demonstrated and validated with a set of numerically simulated data for a four-story steel moment-resisting frame designed based on current seismic provisions. It is shown that the damage state of the frame is predicted with less variance using the fragility functions derived from the wavelet-based DSF than it is with fragility functions derived from an alternate acceleration-based measure, the spectral acceleration at the first mode period of the structure. Therefore, the fragility functions derived from the wavelet-based DSF can be used as a probabilistic damage classification model in the field of structural health monitoring and an alternative damage prediction model in the field of performance-based earthquake engineering. © 2011 John Wiley & Sons, Ltd.