We study a scalable approach to information fusion for large sensor networks. The algorithm, field inversion by consensus and compressed sensing (FICCS), is a distributed method for detection, localization, and estimation of a propagating field generated by an unknown number of point sources. The approach combines results in the areas of distributed average consensus and compressed sensing to form low dimensional linear projections of all sensor readings throughout the network, allowing each node to reconstruct a global estimate of the field. Compressed sensing is applied to continuous source localization by quantizing the potential locations of sources, transforming the model of sensor observations to a finite discretized linear model. We study the effects of structured modeling errors induced by spatial quantization and the robustness of ℓ1 penalty methods for field inversion. We develop a perturbations method to analyze the effects of spatial quantization error in compressed sensing and provide a model-robust version of noise-aware basis pursuit with an upperbound on the sparse reconstruction error. Numerical simulations illustrate system design considerations by measuring the performance of decentralized field reconstruction, detection performance of point phenomena, comparing trade-offs of quantization parameters, and studying various sparse estimators. The method is extended to time-varying systems using a recursive sparse estimator that incorporates priors into ℓ1 penalized least squares. This thesis presents the advantages of inter-sensor measurement mixing as a means of efficiently spreading information throughout a network, while identifying sparse estimation as an enabling technology for scalable distributed field reconstruction systems.