In a multimodal image registration scenario, where two given images have similar features, but noncomparable intensity variations, the sum of squared differences is not suitable for inferring image similarities. In this article, we first propose a new variational model based on combining intensity and geometric transformations, as an alternative to use mutual information and an improvement to the work by Modersitzki and Wirtz (Modersitzki and Wirtz, Lect Notes Comput Sci 4057 (2006), 257–263), and then develop a fast multigrid (MG) algorithm for solving the underlying system of fourth‐order and nonlinear partial differential equations. We can demonstrate the effective smoothing property of the adopted primal‐dual smoother by a local Fourier analysis. Numerical tests will be presented to show both the improvements achieved in image registration quality and MG efficiency. © 2011 Wiley Periodicals, Inc. Numer Methods Partial Differential Eq, 2011