© 2016 SPIE. In this paper I will describe work done as part of an EU-funded project 'Far-infrared space interferometer critical assessment' (FISICA). The aim of the project is to investigate science objectives and technology development required for the next generation THz space interferometer. The THz/FIR is precisely the spectral region where most of the energy from stars, exo-planetary systems and galaxy clusters deep in space is emitted. The atmosphere is almost completely opaque in the wave-band of interest so any observation that requires high quality data must be performed with a space-born instrument. A space-borne far infrared interferometer will be able to answer a variety of crucial astrophysical questions such as how do planets and stars form, what is the energy engine of most galaxies and how common are the molecule building blocks of life. The FISICA team have proposed a novel instrument based on a double Fourier interferometer that is designed to resolve the light from an extended scene, spectrally and spatially. A laboratory prototype spectral-spatial interferometer has been constructed to demonstrate the feasibility of the double-Fourier technique at far infrared wavelengths (0.15-1 THz). This demonstrator is being used to investigate and validate important design features and data-processing methods for future instruments. Using electromagnetic modelling techniques several issues related to its operation at long baselines and wavelengths, such as diffraction, have been investigated. These are critical to the design of the concept instrument and the laboratory testbed.