Note: I don't have time/motivation to maintain this plugin. The last version of Unity it was confirmed to work with was 2017.3.0; some issues apparently occur in v2018 and up (see forum thread for details). Leaving it up for users on old versions and/or for reference. (at reduced cost of $5)
This Unity extension lets you make holes in your terrain that characters and other objects can move through.
Webplayer Demo
Forum Thread
Features:
* Enables transparency for terrains that 'just works'. Simply 'paint on' a transparent texture, and the areas painted will become transparent.
* Comes with an "object fall through" script, which disables terrain collisions, thus creating genuine holes.
* Compatible with Forward and Deferred rendering.
Notes:
* If shadows are enabled with Forward rendering, transparent areas still "receive shadows", making the objects behind them darker. You can avoid this by switching to Deferred rendering, or disabling terrain shadows.