diff --git a/projects/jupyter-server-ydoc/jupyter_server_ydoc/stores.py b/projects/jupyter-server-ydoc/jupyter_server_ydoc/stores.py
index 0e17e855..5e889b6b 100644
--- a/projects/jupyter-server-ydoc/jupyter_server_ydoc/stores.py
+++ b/projects/jupyter-server-ydoc/jupyter_server_ydoc/stores.py
@@ -5,6 +5,8 @@
 from pycrdt.store import TempFileYStore as _TempFileYStore
 from traitlets import Int, Unicode
 from traitlets.config import LoggingConfigurable
+import importlib
+from typing import Callable
 
 
 class TempFileYStore(_TempFileYStore):
@@ -15,6 +17,30 @@ class SQLiteYStoreMetaclass(type(LoggingConfigurable), type(_SQLiteYStore)):  #
     pass
 
 
+def import_from_dotted_path(dotted_path: str) -> Callable | None:
+    """Import a function from a dotted import path.
+
+    Args:
+        dotted_path: String like 'module.submodule.function_name'
+
+    Returns:
+        The imported function
+
+    Raises:
+        ImportError: If the module or function cannot be imported
+        AttributeError: If the function doesn't exist in the module
+    """
+    if not dotted_path:
+        return None
+
+    try:
+        module_path, function_name = dotted_path.rsplit(".", 1)
+        module = importlib.import_module(module_path)
+        return getattr(module, function_name)
+    except (ValueError, ImportError, AttributeError) as e:
+        raise ImportError(f"Could not import '{dotted_path}': {e}")
+
+
 class SQLiteYStore(LoggingConfigurable, _SQLiteYStore, metaclass=SQLiteYStoreMetaclass):
     db_path = Unicode(
         ".jupyter_ystore.db",
@@ -30,3 +56,53 @@ class SQLiteYStore(LoggingConfigurable, _SQLiteYStore, metaclass=SQLiteYStoreMet
         help="""The document time-to-live in seconds. Defaults to None (document history is never
         cleared).""",
     )
+
+    compress_function = Unicode(
+        "",
+        config=True,
+        help="""Dotted import path to compression function. The function should accept bytes
+        and return compressed bytes. Defaults to None (no compression).""",
+    )
+
+    decompress_function = Unicode(
+        "",
+        config=True,
+        help="""Dotted import path to decompression function. The function should accept
+        compressed bytes and return decompressed bytes. Defaults to None (no decompression).""",
+    )
+
+    def __init__(self, **kwargs):
+        super().__init__(**kwargs)
+        self._setup_compression()
+
+    def _setup_compression(self):
+        """Set up compression callbacks if both compress and decompress paths are provided."""
+        if not self.compress_function or not self.decompress_function:
+            # If either is empty, don't set up compression
+            if self.compress_function or self.decompress_function:
+                self.log.warning(
+                    "Both compress_function and decompress_function must be specified "
+                    "to enable compression. Currently only one is set."
+                )
+            return
+
+        try:
+            # Import the compression functions
+            compress_func = import_from_dotted_path(self.compress_function)
+            decompress_func = import_from_dotted_path(self.decompress_function)
+
+            # Validate that they are callable
+            if not callable(compress_func) or not callable(decompress_func):
+                raise TypeError("Both compression functions must be callable")
+
+            # Register the compression callbacks
+            self.register_compression_callbacks(compress_func, decompress_func)
+            self.log.info(
+                f"Registered compression callbacks: {self.compress_function} / {self.decompress_function}"
+            )
+        except ImportError as e:
+            self.log.error(f"Failed to import compression functions: {e}")
+        except TypeError as e:
+            self.log.error(f"Invalid compression functions: {e}")
+        except Exception as e:
+            self.log.error(f"Unexpected error setting up compression: {e}")
diff --git a/tests/test_app.py b/tests/test_app.py
index b46b2bb7..12e81402 100644
--- a/tests/test_app.py
+++ b/tests/test_app.py
@@ -77,6 +77,30 @@ async def test_document_ttl_from_settings(rtc_create_mock_document_room, jp_conf
     assert store.document_ttl == 3600
 
 
+async def test_compression_from_settings(rtc_create_mock_document_room, jp_configurable_serverapp):
+    argv = [
+        "--SQLiteYStore.compress_function=gzip.compress",
+        "--SQLiteYStore.decompress_function=gzip.decompress",
+    ]
+
+    app = jp_configurable_serverapp(argv=argv)
+
+    id = "test-compression"
+    content = "test_compression_content"
+    rtc_create_SQLite_store = rtc_create_SQLite_store_factory(app)
+    store = await rtc_create_SQLite_store("file", id, content)
+
+    assert store.compress_function == "gzip.compress"
+    assert store.decompress_function == "gzip.decompress"
+
+    test_data = b"Hello, world! This is test data for compression."
+    compressed = store._compress(test_data)
+    decompressed = store._decompress(compressed)
+
+    assert compressed != test_data
+    assert decompressed == test_data
+
+
 @pytest.mark.parametrize("copy", [True, False])
 async def test_get_document_file(rtc_create_file, jp_serverapp, copy):
     path, content = await rtc_create_file("test.txt", "test", store=True)