The Wadden Sea is a unique habitat formed by the strong influence of tidal currents. Twice a day the area is flooded and falls dry afterwards. Due to the force of tidal streams, strong morphologic changes occur frequently. In order to monitor these changes, high precision digital terrain models (DTMs) are required. Lidar proved to be an adequate technique to deliver highly accurate 3D mass points of the surface and dense spacing. However, water often remains within tidal channels and depressions even at low tide, and near infrared lidar is not able to penetrate the water leading to a point cloud which contains surface and water points. Thus, the standard processing workflow for DTM generation from lidar is not suited for the Wadden Sea. In this article, a new workflow is proposed for DTM generation from lidar data in the Wadden Sea. Two major building blocks of this workflow, namely classification of the water points and structure line detection, are presented in detail. For both tasks suitable algorithms were developed tailored to meet special requirements of mudflat. Lidar measurements from water surfaces are detected by a supervised fuzzy classification using the features height, intensity, and 2D point density. Structure lines are derived through a piecewise reconstruction of the surface from the lidar data with a hyperbolic tangent function. The obtained results show that both methods considerably improve the accuracy of DTMs from lidar data.