A new parameterization method for parameter identification is presented. This method allows us to incorporate all well log data and any other geological information into the inverse solution procedure for three‐dimensional groundwater modeling. In the proposed method, unknown parameters, such as hydraulic conductivity and storage coefficient, are directly related to the geological materials. Existing well logs of an aquifer can provide information of local geological structures along the vertical direction. By using these data, as well as any other geological information available, the three‐dimensional structure of the aquifer can be estimated by means of the geostatistical method. Then, art inverse problem can be formulated, leaving fewer unknown parameters to be identified. The advantages of the proposed method are the following: (1) all existing geological and hydrogeological information available is used for parameter identification, (2) the identified parameters are independent of the complexity of the simulation model, (3( the ill‐posedness of the inverse solution is mitigated, and (4) the identified parameters are distributed and physically meaningful. In a hypothetical example, the three‐dimensional distribution of hydraulic conductivity is easily identified using the proposed method. The results indicate that the identified distributed parameter vector is very close to the “true” distribution, and the inverse solution is highly stable with respect to observation errors. The proposed methodology has enabled us to determine the three‐dimensional distribution of hydraulic conductivity and storativity in the Hemet basin, Riversid