A new technique for optical pattern recognition with two-center recording of persistent holograms in doubly doped LiNbO₃3:Fe:Mn crystal is presented, by which the holograms are localized in separate slices along the recording medium. The localized recording method has the distinctive advantage of selective recording and erasure of the individual holograms without affecting the entire holographic recording medium. This capability enables dynamic content modification of the optical pattern recognition systems. Also, the diffraction efficiency of localized holograms is much larger than that of the normal volume multiplexed holograms. It is theoretically shown that the localized holographic correlator (LHC) outperforms the conventional volume holographic correlators in terms of crosstalk, shift invariance, and capacity. The LHC is experimentally demonstrated. Several persistent holograms are localized within separate slices as close as 33 μm apart along the crystal. The excessive diffraction efficiency of the localized holograms is employed to enhance the LHC robustness through multiplexing several holograms per pattern within individual slices of the recording medium. A holographic data storage system based on two-center holographic recording in a doubly doped LiNbO3:Fe:Mn crystal is developed with angular multiplexing capability. The associated imaging system has been optimized for the pixel matching of pixelated bit patterns generated by a spatial light modulator (SLM) through the recording medium onto a camera. The initial multiplexed holograms show promising contrast of dark and bright pixels. With the optimized imaging system of the developed holographic memory, the implementation of a dynamic read/write data storage system with localized recording is envisioned. The large diffraction efficiency of the localized holograms enables multilevel (M-ary) data coding to improve the storage density of the system.