Magnetotelluric (MT) data are inverted for smooth 2-D models using an extension of the existing 1-D algorithm, Occam's inversion. Since an MT data set consists of a finite number of imprecise data, an infinity of solutions to the inverse problem exists. Fitting field or synthetic electromagnetic data as closely as possible results in theoretical models with a maximum amount of roughness, or structure. However, by relaxing the misfit criterion only a small amount, models which are maximally smooth may be generated. Smooth models are less likely to result in overinterpretation of the data and reflect the true resolving power of the MT method. The models are composed of a large number of rectangular prisms, each having a constant conductivity. A priori information, in the form of boundary locations only or both boundary locations and conductivity, may be included, providing a powerful tool for improving the resolving power of the data. Joint inversion of TE and TM synthetic data generated from known models allows comparison of smooth models with the true structure. In most cases, smoothed versions of the true structure may be recovered in 12-16 iterations. However, resistive features with a size comparable to depth of burial are poorly resolved. Real MT data present problems of non-Gaussian data errors, the breakdown of the two-dimensionality assumption and the large number of data in broadband soundings; nevertheless, real data can be inverted using the algorithm.