A data compression system for increasing the speed of data transmission system over a communication channel with a predefined data transmission rate. The system has two data compression units--one on each end of the channel, coupled to first and second data processing systems. Input data from either data processing system is encoded using a selected one of a plurality of encoding tables, each of which defines a method of encoding data using codes whose length varies inversely with the frequency of units of data in a predefined set of data. Whenever an analysis of the encoded data indicates that the data is not being efficiently compressed, the system invokes a table changer for selecting from among the encoding tables the one which minimizes the bit length of the encoded data for a preselected sample of the input data. If a new table is selected, a table change code which corresponds to the selected table is added to the encoded data. Also, a dynamic table builder builds a new encoding table to be including in the set of available encoding tables using a preselected portion of the previously encoded input data which an analysis of the encoded data indicates that a new encoding table will enhance compression. Each data compression unit includes a data decoder for decoding encoded data sent over the channel by the other unit. Thus the data decoder uses a set of decoding tables corresponding to the encoding tables, means for selecting a new table when a table change code is received, and means for building a new decoding table when it receives a table change code which indicates that the encoded data following the table change code was encoded using a new encoding table.