A method for selectively compressing data in a data storage system is provided. Data storage system cache memory is arranged into multiple input/output (IO) cache macroblocks, wherein a first set of IO cache macroblocks are configured as compressed IO cache macroblocks storing a plurality of variable sized compressed IO data blocks, and a second set of IO cache macroblocks are configured as non-compressed IO cache macroblocks storing a plurality of fixed sized non-compressed IO data blocks. An IO activity level of IO data blocks stored in IO cache macroblocks is determined. Multiple macroblock groups are created which correspond to a particular IO activity level. IO data blocks are arranged into macroblocks belonging to a macroblock category according to data block IO activity level. Each macroblock group is compressed, wherein compressing includes selecting a compression algorithm based on the macroblock category. The macroblocks are written to corresponding macroblocks in persistent storage.