A number of data compression techniques have been introduced to reduce the text/data storage and transmission costs. This paper describes the development of a data compression system that employs adaptive Huffman method for generating variable-length codes. Construction of the tree is discussed for gathering latest information about the entered message. The encoder process of the system encodes frequently occurring characters with shorter bit codes and infrequently appearing characters with longer bit codes. Adaptive, sibling, swapping, escape code, and re-scaling mechanisms of the model are briefly explained as they are extremely useful in enhancing compression efficiency. The decoder process expands the encoded text back to the original text and works very much like the encoder process. Experimental results are tabulated which demonstrate that the developed system is very effective for compressing database files (provides compression ratio up to 52.51%) in a real-time environment.