A virtual storage system for use in conjunction with a host computer is disclosed. The system features a memory control processor external to the host computer which divides user-defined data sets into blocks of a size convenient for storage on, e.g., magnetic media and individually assigns these blocks to locations determined external to the host. In this way, the extent of a particular data file is not specified by the user; nor is empty space allocated in anticipation of future use. The virtual memory system may additionally comprise a high speed cache memory for receiving data written to the memory system at high speed from the host. Data anticipated to be the subject of future requests can be staged to the cache, so that it can be supplied to the host at high speed, thus improving system performance. Data compression and decompression may be incorporated in the storage system. Numerous data back-up and automated recovery processing operations may additionally be performed by this system without specific instruction from the host.