Automatic methods used for the calibration of regional groundwater models are notoriously sensitive to inadequacies in hydrological data used to determine the groundwater regime. The situation is often aggravated by errors introduced by manual interpolation to give estimates of piezometric head between observation boreholes, particularly in areas where these are sparse or locally nonexistent. In this paper a new technique is proposed for the automatic interpolation of groundwater level data that are scattered thinly over a regional aquifer system and the simultaneous determination of transmissivity and storage coefficient distributions. The method makes full use of all available information, and it is consistent with the two‐dimensional groundwater flow equations. Results are given to illustrate the success achieved by the method in a practical application.