I finally found a solution to the problem with the NavigationRegion3D.

What I noticed was that on smaller terrains, like the 30x30m example in the third image, the navmesh baked perfectly fine. But once the terrain size was increased to 250x250m, the bake completely fell apart, giving the low poly, floor clipping result shown in the second image. The obvious solution was to process the terrain in smaller chunks and combine the results into one big working navmesh.

I first tried doing this directly in Godot, but even after splitting the terrain into multiple meshes, the bake still treated them as one big mesh, so the same issue happened. I also tried creating a separate NavigationRegion3D for each chunk, but that created non traversable borders where the regions met.

At that point,…

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