Edit MSDOS.SYS and add or edit these lines to the [options] section:

drvspace=0
dblspace=0

   and re-boot.
   
   NOTE: If you do this, you can't access compressed drives from DOS of
   course, but you also can't access them in Win95 either! This is an
   important reason not to compreess your whole hard drive.

     * 11.8.2. How do I load the Win95 DriveSpace driver, but NOT load
       the DOS DriveSpace driver? 
       
   Actually, there IS a way NOT to load the DriveSpace driver in MS-DOS
   Mode, AND use the compressed drive in Win95! You'll find this trick
   useful if you run many programs in Single Mode DOS or make up
   special DOS configurations for certain programs and games, as it saves
   a good 60 KB to 100 KB of conventional memory, and still lets you use
   the compressed drive under Win95 and in DOS sessions.
   
   This is a bit tricky, so only do it if you know what you're doing, AND
   you aren't picky about what drive letter the compressed drive takes,
   AND you didn't install Win95 on the compressed drive, AND you don't
   assign any network shares on the compressed drive (You'd have to
   re-share them each time you re-boot if you did this.)
   
   1. Put in the entries to MSDOS.SYS above
   
   2. Run Policy Editor, Select File/Open Registry, and in Local
   Computer/System/Run Services, add this entry:
       
Name: Manually mount DriveSpace Drive (Actually you can call this what you want)
Value: DRVSPACE.EXE /MOUNT=001 C:

   3. Save changes to the Registry, and test by re-booting to "Command
   Prompt Only" (Press F8 on "Starting Windows 95..."). Check that you
   have lots of conventional memory free.
   
   4. Type WIN to start Win95. Before any other programs load, you should
   get some floppy access and a message stating that your compressed
   drive has mounted.
   
   5. Now you can re-boot normally, once you're sure everything works.
   
   What this does, is prevent the real mode DriveSpace driver from
   loading at all. Again, this means you can't access compressed drives
   outside of Win95. It also mounts the compressed drive, using protected
   mode drivers, before any other Win95 programs start (Run Services runs
   its programs before anything else does). You will get an annoying
   message on start up, but you had to pay the price somewhere for this
   cool trickery, no?

     * Syntax of DRVSPACE.EXE /MOUNT command:
       
DRVSPACE /MOUNT=xxx y: /NEW=z:

   Where "xxx" is the number of the compressed volume (Find out by
   showing all files and looking for a DRVSPACE.001 file; the 001 is the
   number you put in the MOUNT= parameter). "y:" is the drive letter
   where the compressed volume exists. "z:" is the drive letter you
   assign the new compressed drive in the /NEW= parameter. NOTE: /NEW=
   does not always pick the drive letter you want, especially if you have
   network drives. It's best to leave out the /NEW= and just live with
   the drive letter it comes up with. You can specify a range of drive
   letters in the DRVSPACE.INI file, if you choose, to make the
   assignment consistent. Once it settles on a drive letter it will
   consistently use it, until you remove the compressed drive or
   re-assign the drive letter.