Abstract  In this paper, we present a new approach for estimating spatially-distributed reservoir properties from scattered nonlinear dynamic well measurements by promoting sparsity in an appropriate transform domain where the unknown properties are believed to have a sparse approximation. The method is inspired by recent advances in sparse signal reconstruction that is formalized under the celebrated compressed sensing paradigm. Here, we use a truncated low-frequency discrete cosine transform (DCT) is redundant to approximate the spatial parameters with a sparse set of coefficients that are identified and estimated using available observations while imposing sparsity on the solution. The intrinsic continuity in geological features lends itself to sparse representations using selected low frequency DCT basis elements. By recasting the inversion in the DCT domain, the problem is transformed into identification of significant basis elements and estimation of the values of their corresponding coefficients. To find these significant DCT coefficients, a relatively large number of DCT basis vectors (without any preferred orientation) are initially included in the approximation. Available measurements are combined with a sparsity-promoting penalty on the DCT coefficients to identify coefficients with significant contribution and eliminate the insignificant ones. Specifically, minimization of a least-squares objective function augmented by an l ₁-norm of DCT coefficients is used to implement this scheme. The sparsity regularization approach using the l ₁-norm minimization leads to a better-posed inverse problem that improves the non-uniqueness of the history matching solutions and promotes solutions that are, according to the prior belief, sparse in the transform domain. The approach is related to basis pursuit (BP) and least absolute selection and shrinkage operator (LASSO) methods, and it extends the application of compressed sensing to inverse modeling with nonlinear dynamic observations. While the method appears to be generally applicable for solving dynamic inverse problems involving spatially-distributed parameters with sparse representation in any linear complementary basis, in this paper its suitability is demonstrated using low frequency DCT basis and synthetic waterflooding experiments.