Add the optgroup ability to Gravity Forms default select field.

filter_gf_select_optgroup.php

<?php

/**
 * Filter Gravity Forms select field display to wrap optgroups where defined
 * USE:
 * set the value of the select option to `optgroup` within the form editor. The 
 * filter will then automagically wrap the options following until the start of 
 * the next option group
 */

/**
 * Filter Gravity Forms select field display to wrap optgroups where defined
 * USE:
 * set the value of the select option to `optgroup` within the form editor. The 
 * filter will then automagically wrap the options following until the start of 
 * the next option group
 */
add_filter('gform_field_content', 'filter_gf_select_optgroup', 10, 2);
function filter_gf_select_optgroup($input, $field) {
    if ($field->type !== 'select')
        return $input;

    // Extract the content between <select> tags
    $select_regex = "/<\s*?select\b[^>]*>(.*?)<\s*?\/select\b[^>]*>/is";
    if (!preg_match($select_regex, $input, $select_matches)) {
        return $input;
    }
    $options_content = $select_matches[1];

    // Pattern to match individual <option> tags
    $option_regex = "/<\s*?option\s*?value=['\"]([^'\"]+)['\"][^>]*>(.*?)<\/option>/is";
    preg_match_all($option_regex, $options_content, $option_matches, PREG_SET_ORDER);

    if (empty($option_matches)) {
        return $input;
    }

    $new_content = '';
    $in_optgroup = false;

    foreach ($option_matches as $option) {
        $full_option = $option[0];
        $value = $option[1];
        $label = $option[2];

        if ($value === 'optgroup') {
            if ($in_optgroup) {
                $new_content .= '</optgroup>';
            }
            $new_content .= "<optgroup label='" . htmlspecialchars($label) . "'>";
            $in_optgroup = true;
        } else {
            $new_content .= $full_option;
        }
    }

    if ($in_optgroup) {
        $new_content .= '</optgroup>';
    }

    $input = str_replace($options_content, $new_content, $input);

    return $input;
}

@SeanDKendle thank you for the update - I've taken that suggestion - also enhanced the method to work with latest versions of GravityForms