We propose a methodology, called multilevel local–global (MLLG) upscaling, for generating accurate upscaled models of permeabilities or transmissibilities for flow simulation on adapted grids in heterogeneous subsurface formations. The method generates an initial adapted grid based on the given fine-scale reservoir heterogeneity and potential flow paths. It then applies local–global (LG) upscaling for permeability or transmissibility , along with adaptivity, in an iterative manner. In each iteration of MLLG, the grid can be adapted where needed to reduce flow solver and upscaling errors. The adaptivity is controlled with a flow-based indicator. The iterative process is continued until consistency between the global solve on the adapted grid and the local solves is obtained. While each application of LG upscaling is also an iterative process, this inner iteration generally takes only one or two iterations to converge. Furthermore, the number of outer iterations is bounded above, and hence, the computational costs of this approach are low. We design a new flow-based weighting of transmissibility values in LG upscaling that significantly improves the accuracy of LG and MLLG over traditional local transmissibility calculations. For highly heterogeneous (e.g., channelized) systems, the integration of grid adaptivity and LG upscaling is shown to consistently provide more accurate coarse-scale models for global flow, relative to reference fine-scale results, than do existing upscaling techniques applied to uniform grids of similar densities. Another attractive property of the integration of upscaling and adaptivity is that process dependency is strongly reduced, that is, the approach computes accurate global flow results also for flows driven by boundary conditions different from the generic boundary conditions used to compute the upscaled parameters. The method is demonstrated on Cartesian cell-based anisotropic refinement (CCAR) grids, but it can be applied to other adaptation strategies for structured grids and extended to unstructured grids.