Impaired bone toughness is increasingly recognized as a contributor to fragility fractures. At the tissue level, toughness is related to the ability of bone tissue to resist the development of microscopic cracks or other tissue damage. While most of our understanding of microdamage is derived from studies of cortical bone, the majority of fragility fractures occur in regions of the skeleton dominated by cancellous bone. The development of tissue microdamage in cancellous bone may differ from that in cortical bone due to differences in microstructure and tissue ultrastructure. To gain insight into how microdamage accumulates in cancellous bone we determined the changes in number, size and location of microdamage sites following different amounts of cyclic compressive loading. Human vertebral cancellous bone specimens (n = 32, 10 male donors, 6 female donors, age 76 ± 8.8, mean ± SD) were subjected to sub-failure cyclic compressive loading and microdamage was evaluated in three-dimensions. Only a few large microdamage sites (the largest 10%) accounted for 70% of all microdamage caused by cyclic loading. The number of large microdamage sites was a better predictor of reductions in Young’s modulus caused by cyclic loading than overall damage volume fraction (DV/BV). The majority of microdamage volume (69.12 ± 7.04%) was located more than 30 μm (the average erosion depth) from trabecular surfaces, suggesting that microdamage occurs primarily within interstitial regions of cancellous bone. Additionally, microdamage was less likely to be near resorption cavities than other bone surfaces (p < 0.05), challenging the idea that stress risers caused by resorption cavities influence fatigue failure of cancellous bone. Together, these findings suggest that reductions in apparent level mechanical performance during fatigue loading are the result of only a few large microdamage sites and that microdamage accumulation in fatigue is likely dominated by heterogeneity in tissue material properties rather than stress concentrations caused by micro-scale geometry.