Check out TerreSculptor, an awesome free terrain editor with a number of possibilities. 

The project started back in 2005 with the HMCS HeightMap Conversion Software when the developer needed to convert various heightmap file formats to Epic’s proprietary Unreal Engine G16 format. It was a free utility for Engine Licensees and Community Mappers.

TerreSculptor was born in 2010 - the developer wanted to create "a powerful 3D application that rivaled all existing terrain heightmap software." It is stated that the tool has had more than 50,000 downloads, and it is still a free app software for any use: you can use it for personal, commercial or academic projects.

You can find the list of features here and you have to admit that it's quite impressive. The developer continues developing TerreSculptor, so more awesome features are coming.

You can learn more and get the tool here.