Abstract: A data compression system for encoding and decoding textual data, including an encoder for encoding the data and for a decoder for decoding the encoded data. Both encoder and decoder have dictionaries for storing frequently-appearing strings of characters. Each string is identified by a unique pointer. The input data stream is parsed and matched with strings in the encoder dictionary using a novel matching algorithm. The pointer associated with the matched string is then transmitted to a remote location for storage or decoding. Thereafter, using a novel update algorithm the encoder dictionary is updated to include new strings of data based on the matched string of data. If required, a novel deletion algorithm is employed to remove infrequently used strings of data to provide room for the newly generated strings of data. The strings of data may be arranged using a modified least recently used queue.