diff --git a/pkg/downloader/downloader.go b/pkg/downloader/downloader.go
index 41d48e39a88..723c7ea702a 100644
--- a/pkg/downloader/downloader.go
+++ b/pkg/downloader/downloader.go
@@ -1,12 +1,15 @@
 package downloader
 
 import (
+	"bytes"
 	"crypto/sha256"
 	"errors"
 	"fmt"
 	"io"
 	"net/http"
 	"os"
+	"os/exec"
+	"path"
 	"path/filepath"
 	"strings"
 	"time"
@@ -38,6 +41,7 @@ type Result struct {
 
 type options struct {
 	cacheDir       string // default: empty (disables caching)
+	decompress     bool   // default: false (keep compression)
 	description    string // default: url
 	expectedDigest digest.Digest
 }
@@ -73,6 +77,14 @@ func WithDescription(description string) Opt {
 	}
 }
 
+// WithDecompress decompress the download from the cache.
+func WithDecompress(decompress bool) Opt {
+	return func(o *options) error {
+		o.decompress = decompress
+		return nil
+	}
+}
+
 // WithExpectedDigest is used to validate the downloaded file against the expected digest.
 //
 // The digest is not verified in the following cases:
@@ -142,8 +154,9 @@ func Download(local, remote string, opts ...Opt) (*Result, error) {
 		}
 	}
 
+	ext := path.Ext(remote)
 	if IsLocal(remote) {
-		if err := copyLocal(localPath, remote, o.description, o.expectedDigest); err != nil {
+		if err := copyLocal(localPath, remote, ext, o.decompress, o.description, o.expectedDigest); err != nil {
 			return nil, err
 		}
 		res := &Result{
@@ -183,11 +196,11 @@ func Download(local, remote string, opts ...Opt) (*Result, error) {
 			if o.expectedDigest.String() != shadDigestS {
 				return nil, fmt.Errorf("expected digest %q does not match the cached digest %q", o.expectedDigest.String(), shadDigestS)
 			}
-			if err := copyLocal(localPath, shadData, "", ""); err != nil {
+			if err := copyLocal(localPath, shadData, ext, o.decompress, "", ""); err != nil {
 				return nil, err
 			}
 		} else {
-			if err := copyLocal(localPath, shadData, o.description, o.expectedDigest); err != nil {
+			if err := copyLocal(localPath, shadData, ext, o.decompress, o.description, o.expectedDigest); err != nil {
 				return nil, err
 			}
 		}
@@ -212,7 +225,7 @@ func Download(local, remote string, opts ...Opt) (*Result, error) {
 		return nil, err
 	}
 	// no need to pass the digest to copyLocal(), as we already verified the digest
-	if err := copyLocal(localPath, shadData, "", ""); err != nil {
+	if err := copyLocal(localPath, shadData, ext, o.decompress, "", ""); err != nil {
 		return nil, err
 	}
 	if shadDigest != "" && o.expectedDigest != "" {
@@ -253,7 +266,7 @@ func canonicalLocalPath(s string) (string, error) {
 	return localpathutil.Expand(s)
 }
 
-func copyLocal(dst, src string, description string, expectedDigest digest.Digest) error {
+func copyLocal(dst, src, ext string, decompress bool, description string, expectedDigest digest.Digest) error {
 	srcPath, err := canonicalLocalPath(src)
 	if err != nil {
 		return err
@@ -274,9 +287,60 @@ func copyLocal(dst, src string, description string, expectedDigest digest.Digest
 	if description != "" {
 		// TODO: progress bar for copy
 	}
+	if _, ok := Decompressor(ext); ok && decompress {
+		return decompressLocal(dstPath, srcPath, ext)
+	}
 	return fs.CopyFile(dstPath, srcPath)
 }
 
+func Decompressor(ext string) ([]string, bool) {
+	var program string
+	switch ext {
+	case ".gz":
+		program = "gzip"
+	case ".bz2":
+		program = "bzip2"
+	case ".xz":
+		program = "xz"
+	case ".zst":
+		program = "zstd"
+	default:
+		return nil, false
+	}
+	// -d --decompress
+	return []string{program, "-d"}, true
+}
+
+func decompressLocal(dst, src, ext string) error {
+	command, found := Decompressor(ext)
+	if !found {
+		return fmt.Errorf("decompressLocal: unknown extension %s", ext)
+	}
+	logrus.Infof("decompressing %s with %v", ext, command)
+	in, err := os.Open(src)
+	if err != nil {
+		return err
+	}
+	defer in.Close()
+	out, err := os.OpenFile(dst, os.O_CREATE|os.O_WRONLY, 0644)
+	if err != nil {
+		return err
+	}
+	defer out.Close()
+	buf := new(bytes.Buffer)
+	cmd := exec.Command(command[0], command[1:]...)
+	cmd.Stdin = in
+	cmd.Stdout = out
+	cmd.Stderr = buf
+	err = cmd.Run()
+	if err != nil {
+		if ee, ok := err.(*exec.ExitError); ok {
+			ee.Stderr = buf.Bytes()
+		}
+	}
+	return err
+}
+
 func validateLocalFileDigest(localPath string, expectedDigest digest.Digest) error {
 	if localPath == "" {
 		return fmt.Errorf("validateLocalFileDigest: got empty localPath")
diff --git a/pkg/downloader/downloader_test.go b/pkg/downloader/downloader_test.go
index 93785861126..1de5cbb89ab 100644
--- a/pkg/downloader/downloader_test.go
+++ b/pkg/downloader/downloader_test.go
@@ -3,6 +3,7 @@ package downloader
 import (
 	"io/ioutil"
 	"os"
+	"os/exec"
 	"path/filepath"
 	"runtime"
 	"testing"
@@ -130,3 +131,29 @@ func TestDownloadLocal(t *testing.T) {
 	})
 
 }
+
+func TestDownloadCompressed(t *testing.T) {
+
+	if runtime.GOOS == "windows" {
+		// FIXME: `assertion failed: error is not nil: exec: "gzip": executable file not found in %PATH%`
+		t.Skip("Skipping on windows")
+	}
+
+	t.Run("gzip", func(t *testing.T) {
+		localPath := filepath.Join(t.TempDir(), t.Name())
+		localFile := filepath.Join(t.TempDir(), "test-file")
+		testDownloadCompressedContents := []byte("TestDownloadCompressed")
+		ioutil.WriteFile(localFile, testDownloadCompressedContents, 0644)
+		assert.NilError(t, exec.Command("gzip", localFile).Run())
+		localFile += ".gz"
+		testLocalFileURL := "file://" + localFile
+
+		r, err := Download(localPath, testLocalFileURL, WithDecompress(true))
+		assert.NilError(t, err)
+		assert.Equal(t, StatusDownloaded, r.Status)
+
+		got, err := os.ReadFile(localPath)
+		assert.NilError(t, err)
+		assert.Equal(t, string(got), string(testDownloadCompressedContents))
+	})
+}
diff --git a/pkg/fileutils/download.go b/pkg/fileutils/download.go
index 76aaa09b1b0..a973dc02de8 100644
--- a/pkg/fileutils/download.go
+++ b/pkg/fileutils/download.go
@@ -10,7 +10,7 @@ import (
 )
 
 // DownloadFile downloads a file to the cache, optionally copying it to the destination. Returns path in cache.
-func DownloadFile(dest string, f limayaml.File, description string, expectedArch limayaml.Arch) (string, error) {
+func DownloadFile(dest string, f limayaml.File, decompress bool, description string, expectedArch limayaml.Arch) (string, error) {
 	if f.Arch != expectedArch {
 		return "", fmt.Errorf("unsupported arch: %q", f.Arch)
 	}
@@ -18,6 +18,7 @@ func DownloadFile(dest string, f limayaml.File, description string, expectedArch
 	logrus.WithFields(fields).Infof("Attempting to download %s", description)
 	res, err := downloader.Download(dest, f.Location,
 		downloader.WithCache(),
+		downloader.WithDecompress(decompress),
 		downloader.WithDescription(fmt.Sprintf("%s (%s)", description, path.Base(f.Location))),
 		downloader.WithExpectedDigest(f.Digest),
 	)
diff --git a/pkg/qemu/qemu.go b/pkg/qemu/qemu.go
index 57d2a903176..c6192bb4d54 100644
--- a/pkg/qemu/qemu.go
+++ b/pkg/qemu/qemu.go
@@ -50,12 +50,12 @@ func EnsureDisk(cfg Config) error {
 		var ensuredBaseDisk bool
 		errs := make([]error, len(cfg.LimaYAML.Images))
 		for i, f := range cfg.LimaYAML.Images {
-			if _, err := fileutils.DownloadFile(baseDisk, f.File, "the image", *cfg.LimaYAML.Arch); err != nil {
+			if _, err := fileutils.DownloadFile(baseDisk, f.File, true, "the image", *cfg.LimaYAML.Arch); err != nil {
 				errs[i] = err
 				continue
 			}
 			if f.Kernel != nil {
-				if _, err := fileutils.DownloadFile(kernel, f.Kernel.File, "the kernel", *cfg.LimaYAML.Arch); err != nil {
+				if _, err := fileutils.DownloadFile(kernel, f.Kernel.File, false, "the kernel", *cfg.LimaYAML.Arch); err != nil {
 					errs[i] = err
 					continue
 				}
@@ -67,7 +67,7 @@ func EnsureDisk(cfg Config) error {
 				}
 			}
 			if f.Initrd != nil {
-				if _, err := fileutils.DownloadFile(initrd, *f.Initrd, "the initrd", *cfg.LimaYAML.Arch); err != nil {
+				if _, err := fileutils.DownloadFile(initrd, *f.Initrd, false, "the initrd", *cfg.LimaYAML.Arch); err != nil {
 					errs[i] = err
 					continue
 				}
diff --git a/pkg/start/start.go b/pkg/start/start.go
index 8e504ea1ac8..70e8c377057 100644
--- a/pkg/start/start.go
+++ b/pkg/start/start.go
@@ -39,7 +39,7 @@ func ensureNerdctlArchiveCache(y *limayaml.LimaYAML) (string, error) {
 
 	errs := make([]error, len(y.Containerd.Archives))
 	for i, f := range y.Containerd.Archives {
-		path, err := fileutils.DownloadFile("", f, "the nerdctl archive", *y.Arch)
+		path, err := fileutils.DownloadFile("", f, false, "the nerdctl archive", *y.Arch)
 		if err != nil {
 			errs[i] = err
 			continue
diff --git a/pkg/vz/disk.go b/pkg/vz/disk.go
index 58bbc92a2fd..1513c0558a0 100644
--- a/pkg/vz/disk.go
+++ b/pkg/vz/disk.go
@@ -29,7 +29,7 @@ func EnsureDisk(driver *driver.BaseDriver) error {
 		var ensuredBaseDisk bool
 		errs := make([]error, len(driver.Yaml.Images))
 		for i, f := range driver.Yaml.Images {
-			if _, err := fileutils.DownloadFile(baseDisk, f.File, "the image", *driver.Yaml.Arch); err != nil {
+			if _, err := fileutils.DownloadFile(baseDisk, f.File, true, "the image", *driver.Yaml.Arch); err != nil {
 				errs[i] = err
 				continue
 			}