An iterative inversion technique has been developed that uses the direct P and S wave arrival times from local earthquakes to compute simultaneously a three-dimensional velocity structure and relocated hypocenters. Crustal structure is modeled by subdiving flat layers into rectangular blocks. An interpolation function is used to smoothly vary velocities between blocks, allowing ray trace calculations of travel times in a three-dimensional medium. Tests using synthetic data from known models show that solutions are reasonably independent of block size and spatial distribution but are sensitive to the choice of layer thicknesses. Application of the technique to observed earthquake data from north-central Utah shown the following: (1) lateral velcoity variations in the crust as large as 7% occur over 30-km distance, (2) earthquake epicenters computed with the three-dimensional velocity structure were shifted an average of 3.0 km from location determined assuming homogeneous flat layered models, and (3) the laterally varying velocity structure correlates with anomalous variations in the local gravity and aeromagnetic fields, suggesting that the new velocity information can be valuable in acquiring a better understanding of crustal structure.