This study presents a dynamic inversion method for the concrete gravity dam on a soft rock foundation, aiming to accurately characterize the time-dependent trend of the dam’s mechanical properties. Conventional static inversion methods often overlook temporal variations in material behavior, particularly the long-term weakening of soft rock foundations under environmental influences. To address this limitation, an improved particle swarm optimization (PSO) algorithm is developed for dynamic parameter inversion, combining real-time monitoring data with finite element modeling to evaluate the time-varying elastic modulus of the foundation. The results reveal an exponential decay in the foundation’s elastic modulus (from 4.67 GPa to approximately 3.83 GPa), while the dam body maintains a stable modulus of 20.74 GPa. Comparative analyses demonstrate that the dynamic inversion approach, which accounts for time-dependent parameter degradation, significantly improves the displacement prediction accuracy of the dam. The results highlight the critical importance of incorporating temporal mechanical property variations in inversion analyses to ensure reliable structural assessments and enhance long-term dam safety management.