A data compression/decompression methodology and system stores in a compression-side dictionary the data that has been transmitted and additionally applies to such data in the compression-side dictionary a status of being “invalid” for purposes of use as a reference in data compression until an acknowledgement signal has been received from the decompression side indicating that such data has been received. Once the compression side has received the acknowledgement signal indicating that the data in the form of a compressed data packet has been received on the decompression side, the status is changed from being “invalid” into being “valid”, i.e., into being usable as reference data for use in compressing further data elements in the data stream. Each data packet includes a stream index which is representative of the memory location in the compression-side dictionary where the first data element of the uncompressed data set of the data packet is stored.