The official DOSBox doesn't support this but there is a patch to do so (you've have to add it and compile DOSBox though).

I think frontends like DFend Reloaded and DOG handle this if your copy of DOSBox doesn't support it but I haven't tried it with them.

You can make a hdd compression for that reason - no need for extra implementation into dosbox. Just make a separate hdd partition for old games (or even connect a separate hdd for them) and apply a hdd compresion for it.
And all these old games are so huge when compared to 16GB Grand Theft Auto IV for example.
And Hdds are getting smaller and more expensive all the time.

Why a separate partition? At least on WinXP I can opt to compress just a folder.

MiniMax wrote:

Why a separate partition? At least on WinXP I can opt to compress just a folder.

Any Windows NT since at least NT4 and perhaps 3.5 can do this.

Old topic, still interesting.
Disk compression compresses between 5 to 20%.
File compression like 7z, RAR, or even Winzip, compresses between 25-80%; that is uncompressed data of course.
If you're going to try to compress an MP2/3 file, JPEG, or another archive, you won't get those ratios, as the jpeg/Gif, MP2/3/4, OGG, Opus etc... file formats already are a compression format on themselves..
But text files compress really well.

Only problem I see with this, is that certain files get modified when opening them. And save files would need to be created outside of the archive, not to affect the original archive.
Keeping them in an archive, will result in you starting from zero every time you eg: play a game, or need to reset the configuration of some programs every time .