A digital elevation model (DEM) derived from remote sensing data often suffers from outliers due to various reasons such as the physical limitation of sensors and low contrast of terrain textures. In order to reduce the effect of outliers on DEM construction, a robust algorithm of multiquadric (MQ) methodology based on M-estimators (MQ-M) was proposed. MQ-M adopts an adaptive weight function with three-parts. The weight function is null for large errors, one for small errors and quadric for others. A mathematical surface was employed to comparatively analyze the robustness of MQ-M, and its performance was compared with those of the classical MQ and a recently developed robust MQ method based on least absolute deviation (MQ-L). Numerical tests show that MQ-M is comparative to the classical MQ and superior to MQ-L when sample points follow normal and Laplace distributions, and under the presence of outliers the former is more accurate than the latter. A real-world example of DEM construction using stereo images indicates that compared with the classical interpolation methods, such as natural neighbor (NN), ordinary kriging (OK), ANUDEM, MQ-L and MQ, MQ-M has a better ability of preserving subtle terrain features. MQ-M replaces thin plate spline for reference DEM construction to assess the contribution to our recently developed multiresolution hierarchical classification method (MHC). Classifying the 15 groups of benchmark datasets provided by the ISPRS Commission demonstrates that MQ-M-based MHC is more accurate than MQ-L-based and TPS-based MHCs. MQ-M has high potential for DEM construction.