While lattice kinetic Monte Carlo (KMC) methods provide insight into numerous complex physical systems governed by interatomic interactions, they are limited to relatively short length and time scales. Recently introduced coarse-grained Monte Carlo (CGMC) simulations can reach much larger length and time scales at considerably lower computational cost. In this paper we extend the CGMC methods to spatially adaptive meshes for the case of surface diffusion (canonical ensemble). We introduce a systematic methodology to derive the transition probabilities for the coarse-grained diffusion process that ensure the correct dynamics and noise, give the correct continuum mesoscopic equations, and satisfy detailed balance. Substantial savings in CPU time are demonstrated compared to microscopic KMC while retaining high accuracy. (C) 2004 American Institute of Physics.