This paper presents a functional formulation of the groundwater flow inverse problem that is sufficiently general to accommodate most commonly used inverse algorithms. Unknown hydrogeological properties are assumed to be spatial functions that can be represented in terms of a (possibly infinite) basis function expansion with random coefficients. The unknown parameter function is related to the measurements used for estimation by a ''forward operator'' which describes the measurement process. In the particular case considered here, the parameter of interest is the large-scale log hydraulic conductivity, the measurements are point values of log conductivity and piezometric head, and the forward operator is derived from an upscaled groundwater flow equation. The inverse algorithm seeks the ''most probable'' or maximum a posteriori estimate of the unknown parameter function. When the measurement errors and parameter function are Gaussian and independent, the maximum a posteriori estimate may be obtained by minimizing a least squares performance index which can be partitioned into goodness-of-fit and prior terms. When the parameter is a stationary random function the prior portion of the performance index is equivalent to a regularization term which imposes a smoothness constraint on the estimate. This constraint tends to make the problem well-posed by limiting the range of admissible solutions. The Gaussian maximum a posteriori problem may be solved with variational methods, using functional generalizations of Gauss-Newton or gradient-based search techniques. Several popular groundwater inverse algorithms are either special cases of, or variants on, the functional maximum a posteriori algorithm. These algorithms differ primarily with respect to the way they describe spatial variability and the type of search technique they use (linear versus nonlinear). The accuracy of estimates produced by both linear and nonlinear inverse algorithms may be measured in terms of a Bayesian extension of the Cramer-Rao lower bound on the estimation error covariance. This bound suggests how parameter identifiability can be improved by modifying the problem structure and adding new measurements. ¿ American Geophysical Union 1996