It is well recognised that data volume represents a huge overhead for softcopy photogrammetry. For example, a file size of 100 Mbytes will be generated from a black and white aerial photograph if digitised with a resolution of 20μm. Large data volumes not only create storage problems but also affect the speed of image processing. As a consequence, data compression of image data is a matter of great significance. This paper describes an investigation into the effects of image compression on the accuracy of digital terrain models (DTMs) extracted from the compressed images. The JPEG system implemented in the Z/I Imaging ImageStation digital photogrammetric workstation (DPW) was used in the study. A systematic test has been carried out on the effect of different levels of JPEG compression (with Q-factors from 1 to 100) on the resulting DTM, which is automatically generated by the DPW using Match-T software. An analysis of the results from the two sites tested shows that image compression tends to cause more significant degradation when the image texture is richer, but that recommendations on Q-factors for use with the ImageStation appear to err on the side of caution. This analysis leads to some tentative conclusions and recommendations both for future investigation and for photogrammetric practice.