The improved data compression system concurrently processes both strings of repeated characters and textual substitution of input character strings. In this system, the performance of data compression techniques based on textual substitution are improved by the use of a compact representation for identifying instances in which a character in the input data stream is repeated. This is accomplished by nesting a run length encoding system in the textual substitution system. This structure adds the recognition of runs of a repeated character before the processor performs the textual substituted data compression operation. A further performance improvement is obtained by expanding the alphabet of symbols stored in the compressor's dictionary to include both the characters of the input data stream and repeat counts which indicate the repetition of a character. The handling of these repeat counts by the textual substitution based compression technique is no different than the handling of characters, or certain modifications are made in the handling of repeat counts.