The large contrast in electrical conductivity between seawater and the underlying seafloor accumulates boundary electric charges which can severely distort observed electric and magnetic fields. For marine magnetotelluric (MT) studies, correcting this topographic effect is critical to obtaining accurate conductivity models for the mantle. Previously, correction for topography was based on the thin sheet approximation which breaks down at periods under ~1000 s in the deep ocean. This paper introduces an analysis method for seafloor MT data which combines removal of three-dimensional (3-D) topographic effects with inversion of the data for 2-D structure. The observed MT impedance is first corrected to a flat-lying seafloor datum using the observed bathymetry without invoking the thin sheet approximation. The corrected MT response is then inverted in a flat seafloor model space. Because of coupling between topographic effects and deeper structure, the correction and inversion steps are iterated until changes in each become small. The procedure is verified using synthetic and real data. Tests for synthetic 3-D topography over a half-space show that the method closely recovers the true half-space model after a few iterations. The procedure is also applied to real data collected in the Mantle Electromagnetic and Tomography (MELT) experiment on the East Pacific Rise at 17¿S.