The zisofs filesystem is an extension to the ISO9660 filesystem that allows files, on a file-by-file basis, to be stored compressed and decompressed in real time. The zisofs filesystem is supported by recent versions of Linux (2.4.14 or later). Legacy systems can still read uncompressed files. zisofs-tools contains the tools necessary to create such a compressed ISO9660 filesystem and to read compressed files on a legacy system.

http://freshmeat.net/projects/zisofs-tools/