A finite‐element model (FEM) incorporating geologic properties characteristic of a subduction zone is compared with FEMs approximating homogeneous elastic half‐spaces (HEHS)s to investigate the effect of heterogeneity on coseismic and postseismic deformation predictions for the 1995 Colima‐Jalisco Mw =8.0 earthquake. The FEMs are used to compute a coefficient matrix relating displacements at observation points due to unit dislocations of contact‐node pairs on the fault surface. The Green's function responses are used to solve the inverse problem of estimating dislocation distributions from coseismic GPS displacements. Predictions from the FEM with heterogeneous material properties, loaded with either of the HEHS dislocation distributions, significantly overestimate coseismic displacements. Postseismic deformation predictions are also sensitive to the coseismic dislocation distribution, which drives poroelastic and viscoelastic relaxation. FEM‐generated Green's functions, which allow for spatial variations in material properties, are thus preferable to those that assume a simple HEHS because the latter leads to dislocation distributions unsuitable for predicting the postseismic response.