Is it possible to extend this idea to fit 3d volume to scattered data, and in general, to higher dimensions? The only limitation I can see is matrix size.

No, gridfit does not explicitly allow you to apply derivative constraints. That does not say it is impossible, only that I did not offer it as an option.
The main reason why not, is it would require a set of linear inequality constraints on the unknowns. For a not uncommon grid of size 100x100, there are 100*100=10000 unknowns to solve for. This is not a problem, since the linear system is a sparse one. However, to solve a sparse linear inequality constrained system, one would need to use LSQLIN, or a solver like it. And the last time I checked, LSQLIN was not set up yet to handle sparse large scale inequality constrained problems. (That may have changed with the most recent release, but I have not checked.) If I made all of the matrices full ones, the solve time would probably be incredibly slow and memory intensive.
So I'm sorry, but gridfit will not handle the problem as is.
If you were willing to build a fairly coarse grid, AND add the constraint system, it would probably be doable in a reasonable time. I don't know how small the grid would need to be to make the solve time reasonable. And your definition of reasonable would surely differ from mine, depending on how badly you needed the answer.

Hey John, would gridfit allow me to constraint the slope of the fitted surface for a given range of data?
I'm needing to model a surface in the form of z(x,y) from scattered data points while keeping the first derivative of z negative in both directions.

I'm trying to make a surface approximation to describe the required input torque to drive a hydraulic motor operating under certain load conditions. My inputs are: output flow, output pressure and input shaft speed. I have scattered measurement data where the relationship between these variables are to be found. I read in some of the earlier posts that gridfit could be extended to higher-dimension fits. Do you have any version where a 3rd dimension can be included that I could try?

Gridfit is very nice. I have written an update that adds bicubic interpolation and improves the internal scaling (makes surface smoothness completely independent of the x/y grid size). If I send you the code, would you update Gridfit?

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