In VMWare Fusion 3. There are 2 parts
Prerequisites are the VM cannot have any snapshots and the virtual disk does not have a preallocated size. Making virtual disk sparse
Clean up Windows
I would then in Windows run the MS Disk Cleanup tool to remove files and then Disk Defragmentor to put all the space in one place.
VMWare tools includes a shrink disk command
Then power off the VM
Clean up the virtual disk
Clean Up a Hard Disk in Fusion's help
From the VMware Fusion menu bar, select Window > Virtual Machine Library.
Click the thumbnail of the virtual machine and click Settings at the bottom of the library window.
Under Removable Devices in the Settings window, select Hard Disks.
In the Hard Disks panel, select the hard disk in the source list.
5 Click Clean Up Disk in the Disk Cleanup section.
VMware Fusion displays a progress dialog as it cleans up the virtual