A class of lossless data compression algorithms use a memory-based dictionary of finite size to facilitate the compression and decompression of data. To reduce the loss in data compression caused by dictionary resets, a standby dictionary is used to store a subset of encoded data entries previously stored in a current dictionary. In a second aspect of the invention, data is compressed/decompressed according to the address location of data entries contained within a dictionary built in a content addressable memory (CAM). In a third aspect of the invention, the minimum memory/high compression capacity of the standby dictionary scheme is combined with the fast single-cycle per character encoding/decoding capacity of the CAM circuit. The circuit uses multiple dictionaries within the storage locations of a CAM to reduce the amount of memory required to provide a high data compression ratio.