In this paper, a new approach to damage tolerance determination, which is related to the critical rupture strain, is proposed for cylindrical shells subjected to inner transient high-pressure loading. The relation of damage variable and circumferential plastic strain is deduced on the basis of a damage evolution equation as well as a simplified dynamic viscoplastic constitutive equation. The value of damage variable can be obtained then if the strain is known by strain measurement, and the damage tolerance just corresponds to the rupture strain of the structure. Further, the damage tolerance has been applied as the strain-based rupture criterion in the FE simulation of the dynamic fracture process for transient-pressurized cylindrical shells. Especially for the notched shells, the strain concentration effect of notches on the rupture criterion is analyzed quantitatively.