This paper presents the use of guided wave concept in localizing small cracks in complex lug joint structures. A lug joint is a one of the several 'hotspots' in an aerospace structure which experiences fatigue damage. Several fatigue tests on lug joint samples prepared from 0.25" plate of Aluminum (Al) 2024 T35l indicated a distinct failure pattern. All samples failed at the shoulders. Different notch sizes are introduced at the shoulders and both virtual and real active health monitoring with piezoelectric transducers is performed. Simulations of the real time experiment are carried out using Finite Element (FE) analysis. Similar crack geometry and piezoelectric transducer orientation are considered both in experiment and in simulation. Results presented illustrate the use of guided waves in interrogating damage in lug joints. A comparison of sensor signals has been made between experimental and simulated signals which show good correlation. The frequency transform on the sensor signal data yield useful information for characterizing damage. Further, sensitivity studies are performed. The sensitivity study information offers potential application in reducing the computational cost for any defect localization technique by reducing redundant sensors. This information is a key to optimal sensor placement for damage detection in structural health monitoring (SHM).