This paper presents an application that allows the generation of virtual terrains interactively, using augmented reality markers. This application also allows the user to navigate in the generated virtual environment. To demonstrate how the process is done, a terrain generation scenario was chosen. Virtual objects were augmented using markers and the detection is done through the ARToolKit framework. A particle system was used to simulate deformation to better incorporate the needs of terrain generation. The deformation itself follows an interparticle force between the particles attached to a movable physical marker and the particles attached to a fixed multi-marker representing the mesh. A viscous force is also used to generate a plastic material effect ensuring permanent deformation. The resulting application although conceptually simple and easy to use, can produce an immersive output environment that the user can freely navigate.