This paper investigates the effects of lossy compression on floating-point digital elevation models using the discrete wavelet transform. The compression of elevation data poses a different set of problems and concerns than does the compression of images. Most notably, the usefulness of DEMs depends largely in the quality of their derivatives, such as slope and aspect. Three areas extracted from the U.S. Geological Survey's National Elevation Dataset were transformed to the wavelet domain using the third order filters of the Daubechies family (DAUB6), and were made sparse by setting 95 percent of the smallest wavelet coefficients to zero. The resulting raster is compressible to a corresponding degree. The effects of the nulled coefficients on the reconstructed DEM are noted as residuals in elevation, derived slope and aspect, and delineation of drainage basins and streamlines. A simple masking technique also is presented, that maintains the integrity and flatness of water bodies in the reconstructed DEM.