Second harmonic generation has been widely used in characterizing microstructural changes which are evenly distributed in a whole structure. However, few attention has been paid to evaluating localized micro-scale damages. In this paper, second harmonic reflection and transmission from the primary S0 mode Lamb wave interacting with a localized microstructural damage is numerically discussed. Schematic diagram for deriving fundamental temporal waveform and reconstructing the second harmonic temporal waveform based on Morlet wavelet transform is presented. Second harmonic reflection and transmission from an interface between the zones of linear elastic and nonlinear materials is firstly studied to verify the existence of interfacial nonlinearity. Compositions contributing to second harmonic components in the reflected and transmitted waves are analyzed. Amplitudes of the reflected and transmitted second harmonic components generated at an interface due to the interfacial nonlinearity are quantitatively evaluated. Then, second harmonic reflection and transmission from a localized microscale damage is investigated. The effects of the length and width of a microscale damage on WCPA (wavelet coefficient profile area) of the reflected and transmitted second harmonic components are studied respectively. It is found that the second harmonic component in the reflected waves mainly reflects the interfacial nonlinearity while second harmonic in the transmitted waves reflects the material nonlinearity. These findings provide some basis on using second harmonic generation for characterization and detection of localized microstructural changes.