A composite element method (CEM) is presented to analyze the free and forced vibrations of a cracked Euler-Bernoulli beam with axial force. The cracks are introduced by using Christides and Barr crack model with an adjustment on one crack parameter. The effects of the cracks and axial force on the reduction of natural frequencies and the dynamic responses of the beam are investigated. The time response sensitivities with respect to the crack parameters (i.e., crack location, crack depth) and the axial force are calculated. The natural frequencies obtained from the proposed method are compared with the analytical results in the literature, and good agreement is found. This study shows that the cracks in the beam may have significant effects on the dynamic responses of the beam. In the inverse problem, a response sensitivity-based model updating method is proposed to identify both a single crack and multiple cracks from measured dynamic responses. The cracks can be identified successfully even using simulated noisy acceleration responses.