Dalian shell carving is a traditional Chinese craft with profound cultural connotations and historical origins, primarily rooted in the cultural traditions of the Northeast Manchu people. However, current research mainly focuses on its artistic value and development history while ignoring the systematic study of its cultural identity, memory traces, and modern design innovation. This study studies Dalian shell carving from theoretical perspectives such as cultural memory, ethnic identity, and modernity to compensate for the shortcomings of existing research methods and applied research. This study focuses on three key periods: the Qing Dynasty, the peak of industrialization (1960s to 1980s), and the contemporary digital age. It uses qualitative research methods, combining field visits, serial interviews, and literature analysis. This study collects data from intangible cultural heritage inheritors, local Manchu residents, designers, and scholars. At the same time, a comparative analysis is conducted to compare historical shell carving techniques with modern shell carving techniques. This study uses Assmann's theory of cultural memory reconstruction to reveal how Dalian shell carving can serve as a medium for preserving and reinterpreting collective memory, connecting traditions with present and future cultural expressions. To revitalize Dalian shell carving in the digital age, this study proposes a design-driven innovation model that integrates digital art and applied technologies, such as augmented reality (AR) experience, IP mascots, and cultural and creative products. The practical results include a series of applied design products that enhance the museum experience and strengthen regional cultural identity. This study contributes to the sustainable development of intangible cultural heritage by combining traditional craftsmanship with modern design methods. It also provides theoretical insights and practical solutions for cultural heritage innovation.