An engineered, scalable underground containment system and method for storing compressed gases or liquids in permeable rock formations using conventional drilling techniques. The porosity and permeability of the formation may be enhanced to maximize reservoir capacity and increase the rate at which gases and liquids can be introduced into and removed from the reservoir. In some embodiments, layers of cap rock in the formation are utilized as containment barriers, and in some, containment barriers are constructed around the storage zones.