The need for regional-scale integrated hydrological models for the purpose of water resource management is increasing. Distributed physically based coupled surface-subsurface models are usually complex and contain a large amount of spatio-temporal information that leads to a relatively long forward runtime. One of the main challenges with regard to regional-scale inverse modeling relates to parameterization and how to adequately exploit the information embedded in the existing observational data while avoiding parameter identifiability issues. This study examined and compared the calibration of a “highly parameterized” model with a “classical” unit-based parameterization scheme in which the dominant geological features were assumed to be known. The physically based coupled surface-subsurface model MIKE SHE was used for conducting the study of five river basins (4,900 km2) in central Jutland in Denmark, characterized by heterogeneous geology and a considerable amount of groundwater flux across topographical catchment boundaries. The results indicated that introducing more flexibility in the parameter estimation process through a regularized approach significantly improved the model performance, in particular head and water balance errors. The highly parameterized calibration results additionally provided very useful insights into the model deficiencies in terms of conceptual model structure and incorrectly imposed boundary conditions. Furthermore, the results from data-worth analysis indicated that the highly parameterized model has more effectively utilized the information in the dataset compared to a traditional unit-based calibration approach.