Abstract: The towel cabinet of the present invention includes a first compartment for storing and dispensing clean, unused paper towels, and a second storage compartment for receiving and storing used paper towels. The two compartments are connected by a manual control which, when actuated, opens a door in the first compartment to permit a clean towel to be exposed and removed and at the same time actuates a panel in the second compartment which compresses used towels into the second compartment. An elevator is provided in the second compartment for adjusting the floorplate of the second compartment as more and more towels are compacted into it, and a corridor is provided between the door in the first compartment and the panel in the second compartment into which the clean towels are dispensed and disposed for retrieval by the operator and into which the used towel is discharged for movement by the panel into the second compartment.