A previous geodetic estimate of 18 mm/yr horizontal extension for the Taupo Volcanic Zone (TVZ) immediately north of Lake Taupo for the period 1949-86 is re-examined for several reasons: this rate has not been confirmed by GPS surveys in the 1990s; newly compiled precise levelling data now allow us to estimate the extent of non-tectonic deformation attributable to the Wairakei geothermal field; and the precise levelling and lake-levelling data reveal a spatial variation in tectonic subsidence that casts doubt on the earlier assumption of homogeneous horizontal strain. We use the vertical and horizontal data to derive a Mogi point source model for the geothermal field, and this model allows us to correct the observed horizontal velocities of survey points. Statistical analysis of the corrected horizontal velocities shows that the strain across the TVZ is not homogeneous. When these factors are accounted for, an extension rate of 8 ± 2 mm/yr (1 SE) can be applicable for both 1949-86 and 1986-97. This is about half the previous estimate, which we now consider to be incorrect. The distribution of deformation differs between these periods, and the seismicity of the region shows temporal variations on a similar time-scale (decades). The extension rate is much greater than can be accounted for by seismic strain release, and the occurrence of historical earthquakes up to M = 6 indicates that a significant part of the measured extension represents seismic strain accumulation. The spatial heterogeneity of the strain partitions the region identically to that derived from geological studies of fault activity. In particular, there is a spatial concentration of extension and tilt about the Whangamata fault system.