SUMMARYRobust computational procedures for the solution of non‐hydrostatic, free surface, irrotational and inviscid free‐surface water waves in three space dimensions can be based on iterative preconditioned defect correction (PDC) methods. Such methods can be made efficient and scalable to enable prediction of free‐surface wave transformation and accurate wave kinematics in both deep and shallow waters in large marine areas or for predicting the outcome of experiments in large numerical wave tanks. We revisit the classical governing equations are fully nonlinear and dispersive potential flow equations. We present new detailed fundamental analysis using finite‐amplitude wave solutions for iterative solvers. We demonstrate that the PDC method in combination with a high‐order discretization method enables efficient and scalable solution of the linear system of equations arising in potential flow models. Our study is particularly relevant for fast and efficient simulation of non‐breaking fully nonlinear water waves over varying bottom topography that may be limited by computational resources or requirements. To gain insight into algorithmic properties and proper choices of discretization parameters for different PDC strategies, we study systematically limits of accuracy, convergence rate, algorithmic and numerical efficiency and scalability of the most efficient known PDC methods. These strategies are of interest, because they enable generalization of geometric multigrid methods to high‐order accurate discretizations and enable significant improvement in numerical efficiency while incuring minimal storage requirements. We demonstrate robustness using such PDC methods for practical ranges of interest for coastal and maritime engineering, that is, from shallow to deep water, and report details of numerical experiments that can be used for benchmarking purposes. Copyright © 2014 John Wiley & Sons, Ltd.