diff --git a/application/config/config.php b/application/config/config.php
index 5240f6c..ae748de 100644
--- a/application/config/config.php
+++ b/application/config/config.php
@@ -384,6 +384,9 @@
 | Even if it does, however, not all browsers support compression
 | so enable only if you are reasonably sure your visitors can handle it.
 |
+| Only used if zlib.output_compression is turned off in your php.ini.
+| Please do not use it together with httpd-level output compression.
+|
 | VERY IMPORTANT:  If you are getting a blank page when compression is enabled it
 | means you are prematurely outputting something to your browser. It could
 | even be a line of whitespace at the end of one of your scripts.  For
diff --git a/system/core/Output.php b/system/core/Output.php
index a7680b3..2ad8e90 100644
--- a/system/core/Output.php
+++ b/system/core/Output.php
@@ -58,21 +58,21 @@
 	 *
 	 * @var	array
 	 */
-	public $headers =	array();
+	public $headers = array();
 
 	/**
 	 * List of mime types
 	 *
 	 * @var	array
 	 */
-	public $mimes =		array();
+	public $mimes =	array();
 
 	/**
 	 * Mime-type for the current page
 	 *
 	 * @var	string
 	 */
-	protected $mime_type	= 'text/html';
+	protected $mime_type = 'text/html';
 
 	/**
 	 * Enable Profiler flag
@@ -82,11 +82,18 @@
 	public $enable_profiler = FALSE;
 
 	/**
-	 * zLib output compression flag
+	 * php.ini zlib.output_compression flag
 	 *
 	 * @var	bool
 	 */
-	protected $_zlib_oc =		FALSE;
+	protected $_zlib_oc = FALSE;
+
+	/**
+	 * CI output compression flag
+	 *
+	 * @var	bool
+	 */
+	protected $_compress_output = FALSE;
 
 	/**
 	 * List of profiler sections
@@ -102,7 +109,7 @@
 	 *
 	 * @var	bool
 	 */
-	public $parse_exec_vars =	TRUE;
+	public $parse_exec_vars = TRUE;
 
 	/**
 	 * Class constructor
@@ -114,6 +121,11 @@
 	public function __construct()
 	{
 		$this->_zlib_oc = (bool) @ini_get('zlib.output_compression');
+		$this->_compress_output = (
+			$this->_zlib_oc === FALSE
+			&& config_item('compress_output') === TRUE
+			&& extension_loaded('zlib')
+		);
 
 		// Get mime types for later
 		$this->mimes =& get_mimes();
@@ -436,15 +448,14 @@
 		if ($this->parse_exec_vars === TRUE)
 		{
 			$memory	= round(memory_get_usage() / 1024 / 1024, 2).'MB';
-
 			$output = str_replace(array('{elapsed_time}', '{memory_usage}'), array($elapsed, $memory), $output);
 		}
 
 		// --------------------------------------------------------------------
 
 		// Is compression requested?
-		if ($CFG->item('compress_output') === TRUE && $this->_zlib_oc === FALSE
-			&& extension_loaded('zlib')
+		if (isset($CI) // This means that we're not serving a cache file, if we were, it would already be compressed
+			&& $this->_compress_output === TRUE
 			&& isset($_SERVER['HTTP_ACCEPT_ENCODING']) && strpos($_SERVER['HTTP_ACCEPT_ENCODING'], 'gzip') !== FALSE)
 		{
 			ob_start('ob_gzhandler');
@@ -468,6 +479,21 @@
 		// simply echo out the data and exit.
 		if ( ! isset($CI))
 		{
+			if ($this->_compress_output === TRUE)
+			{
+				if (isset($_SERVER['HTTP_ACCEPT_ENCODING']) && strpos($_SERVER['HTTP_ACCEPT_ENCODING'], 'gzip') !== FALSE)
+				{
+					header('Content-Encoding: gzip');
+					header('Content-Length: '.strlen($output));
+				}
+				else
+				{
+					// User agent doesn't support gzip compression,
+					// so we'll have to decompress our cache
+					$output = gzinflate(substr($output, 10, -8));
+				}
+			}
+
 			echo $output;
 			log_message('debug', 'Final output sent to browser');
 			log_message('debug', 'Total execution time: '.$elapsed);
@@ -530,9 +556,9 @@
 			return;
 		}
 
-		$uri =	$CI->config->item('base_url').
-				$CI->config->item('index_page').
-				$CI->uri->uri_string();
+		$uri = $CI->config->item('base_url')
+			.$CI->config->item('index_page')
+			.$CI->uri->uri_string();
 
 		$cache_path .= md5($uri);
 
@@ -544,6 +570,19 @@
 
 		if (flock($fp, LOCK_EX))
 		{
+			// If output compression is enabled, compress the cache
+			// itself, so that we don't have to do that each time
+			// we're serving it
+			if ($this->_compress_output === TRUE)
+			{
+				$output = gzencode($output);
+
+				if ($this->get_header('content-type') === NULL)
+				{
+					$this->set_content_type($this->mime_type);
+				}
+			}
+
 			$expire = time() + ($this->cache_expiration * 60);
 
 			// Put together our serialized info.
diff --git a/user_guide_src/source/changelog.rst b/user_guide_src/source/changelog.rst
index 237e237..7d6819f 100644
--- a/user_guide_src/source/changelog.rst
+++ b/user_guide_src/source/changelog.rst
@@ -456,6 +456,7 @@
       -  Added a second argument to method ``set_content_type()`` that allows setting the document charset as well.
       -  Added methods ``get_content_type()`` and ``get_header()``.
       -  Added method ``delete_cache()``.
+      -  Changed caching behavior to compress the output before storing it, if ``$config['compress_output']`` is enabled.
 
    -  :doc:`Config Library <libraries/config>` changes include:
 
diff --git a/user_guide_src/source/general/caching.rst b/user_guide_src/source/general/caching.rst
index 48385d6..f499f6e 100644
--- a/user_guide_src/source/general/caching.rst
+++ b/user_guide_src/source/general/caching.rst
@@ -45,6 +45,9 @@
 	caching will only work if you are generating display for your
 	controller with a :doc:`view <./views>`.
 
+.. important:: If you change configuration options that might affect
+	your output, you have to manually delete your cache files.
+
 .. note:: Before the cache files can be written you must set the file
 	permissions on your *application/cache/* directory such that
 	it is writable.