Traditionally, groundwater flow models, as well as oil reservoir models, are based on the block-centered finite difference method. Well-known models based on this approach are MODFLOW (groundwater) and ECLIPSE (oil and gas). Such models are well proven and robust; their underlying principles are well understood by hydrologists and petroleum reservoir engineers. Nevertheless, the desire to improve the block-centered finite difference paradigm has always been alive, for instance, to be able to apply deformed grid blocks, or to model anisotropy that is not aligned along the coordinate axes. This article introduces the edge-based stream function as a potential alternative to the paradigmatic model, not only to mitigate the above mentioned limitations, but especially for its promise to inverse modeling. Computer programs have been developed for the discrete analog equations of the stream function method and the conventional method. The two methods are tested by using synthetic forward modeling problems of uniform and radial flow. The theoretical formulation and the numerical results show that the two methods are algebraically equivalent and yield the same flux output. However, for rectangular grid blocks and anisotropy aligned along the coordinate axes, the block-centered method is shown to be computationally more efficient than the edge-based stream function method. The major advantage of the stream function method is that it is linear in the resistivities, proving it an ideal candidate for direct inverse modeling. Moreover, any arbitrary specification of stream functions yields a solution that satisfies the mass balance.