Time-dependent density-functional theory/localized density matrix method (TDDFT/LDM) was developed to calculate the excited state energy, absorption spectrum and dynamic polarizability. In the present work we generalize it to calculate the dynamic hyperpolarizabilities in both time and frequency domains. We show that in the frequency domain the 2n+1 rule can be derived readily and the dynamic hyperpolarizabilities are thus calculated efficiently. Although the time-domain TDDFT/LDM is time consuming, its implementation is straightforward because the evaluation of the derivatives of exchange-correlation potential with respect to electron density is avoided. Moreover, the time-domain method can be used to simulate higher order response which is very difficult to be calculated with the frequency-domain method.