We recall the notions of Frölicher and diffeological spaces, and we build regular Frölicher Lie groups and Lie algebras of formal pseudo-differential operators in one independent variable. Combining these constructions with a smooth version of Mulase’s deep algebraic factorization of infinite-dimensional groups based on formal pseudo-differential operators, we present two proofs of the well-posedness of the Cauchy problem for the Kadomtsev–Petviashvili (KP) hierarchy in a smooth category. We also generalize these results to a KP hierarchy modelled on formal pseudo-differential operators with coefficients which are series in formal parameters, we describe a rigorous derivation of the Hamiltonian interpretation of the KP hierarchy, and we discuss how solutions depending on formal parameters can lead to sequences of functions converging to a class of solutions of the standard KP-II equation.