diff --git a/tests/test_arg_ops.py b/tests/test_arg_ops.py
index 904ff407..6698a23e 100644
--- a/tests/test_arg_ops.py
+++ b/tests/test_arg_ops.py
@@ -17,3 +17,230 @@ def test_empty_tree_sequence(self):
         ts = tables.tree_sequence()
         with pytest.raises(ValueError, match="Emtpy trees"):
             arg_ops.add_vestigial_root(ts)
+
+
+def _make_ts(nodes, edges, sites=None, mutations=None, sequence_length=100):
+    """Helper to build a tree sequence from lists of (flags, time) and
+    (left, right, parent, child) tuples."""
+    tables = tskit.TableCollection(sequence_length=sequence_length)
+    for flags, time in nodes:
+        tables.nodes.add_row(flags=flags, time=time)
+    for left, right, parent, child in edges:
+        tables.edges.add_row(left=left, right=right, parent=parent, child=child)
+    if sites is not None:
+        for pos, ancestral in sites:
+            tables.sites.add_row(position=pos, ancestral_state=ancestral)
+    if mutations is not None:
+        for site, node, derived in mutations:
+            tables.mutations.add_row(site=site, node=node, derived_state=derived)
+    tables.sort()
+    return tables.tree_sequence()
+
+
+class TestIsPcAncestor:
+    def test_zero_flags(self):
+        assert not arg_ops.is_pc_ancestor(0)
+
+    def test_sample_flag(self):
+        assert not arg_ops.is_pc_ancestor(tskit.NODE_IS_SAMPLE)
+
+    def test_pc_flag(self):
+        assert arg_ops.is_pc_ancestor(arg_ops.NODE_IS_PC_ANCESTOR)
+
+    def test_pc_flag_combined(self):
+        assert arg_ops.is_pc_ancestor(arg_ops.NODE_IS_PC_ANCESTOR | tskit.NODE_IS_SAMPLE)
+
+    def test_other_bits(self):
+        for bit in range(32):
+            flags = 1 << bit
+            if bit == 16:
+                assert arg_ops.is_pc_ancestor(flags)
+            else:
+                assert not arg_ops.is_pc_ancestor(flags)
+
+
+class TestCompressPaths:
+    def test_identical_single_edge_path(self):
+        """Two children with identical single-edge path — compressed."""
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (0, 1.0)],
+            edges=[(0, 100, 2, 0), (0, 100, 2, 1)],
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == 4  # 3 + 1 PC
+        # 3 edges: parent->PC, PC->0, PC->1
+        assert result.num_edges == 3
+        pc_node = result.node(3)
+        assert arg_ops.is_pc_ancestor(pc_node.flags)
+        assert pc_node.time == 1.0 - arg_ops.PC_ANCESTOR_INCREMENT
+
+    def test_identical_two_edge_path(self):
+        """Two children with identical two-edge path — one PC node."""
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (0, 1.0), (0, 2.0), (0, 2.0)],
+            edges=[
+                (0, 50, 3, 0),
+                (50, 100, 4, 0),
+                (0, 50, 3, 1),
+                (50, 100, 4, 1),
+            ],
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == 6  # 5 + 1 PC
+        # 6 edges: 3->PC, 4->PC, PC->0 x2, PC->1 x2
+        assert result.num_edges == 6
+        pc_node = result.node(5)
+        assert arg_ops.is_pc_ancestor(pc_node.flags)
+        assert pc_node.time == 2.0 - arg_ops.PC_ANCESTOR_INCREMENT
+
+    def test_three_children_identical_path(self):
+        """Three children with identical path — one PC node."""
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (1, 0), (0, 2.0)],
+            edges=[(0, 100, 3, 0), (0, 100, 3, 1), (0, 100, 3, 2)],
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == 5  # 4 + 1 PC
+        # 4 edges: parent->PC, PC->0, PC->1, PC->2
+        assert result.num_edges == 4
+
+    def test_different_paths_not_compressed(self):
+        """Children with different edge sets are not compressed."""
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (0, 1.0), (0, 2.0), (0, 2.0), (0, 2.0)],
+            edges=[
+                (0, 50, 3, 0),
+                (50, 100, 5, 0),  # parent 5 for child 0
+                (0, 50, 3, 1),
+                (50, 100, 4, 1),  # parent 4 for child 1
+            ],
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == ts.num_nodes
+        assert result.num_edges == ts.num_edges
+
+    def test_no_shared_edges(self):
+        """Each child has unique edges — nothing to compress."""
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (0, 1.0)],
+            edges=[(0, 100, 2, 0), (0, 50, 2, 1)],  # different intervals
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == ts.num_nodes
+        assert result.num_edges == ts.num_edges
+
+    def test_partial_path_overlap_not_compressed(self):
+        """Children share some edges but not all — not compressed."""
+        # Child 0 has edges: (0,50,P3) and (50,100,P4)
+        # Child 1 has edges: (0,50,P3) and (50,100,P5)  ← differs
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (0, 1.0), (0, 2.0), (0, 2.0), (0, 2.0)],
+            edges=[
+                (0, 50, 3, 0),
+                (50, 100, 4, 0),
+                (0, 50, 3, 1),
+                (50, 100, 5, 1),
+            ],
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == ts.num_nodes
+        assert result.num_edges == ts.num_edges
+
+    def test_preserves_other_edges(self):
+        """Edges for non-compressed children are preserved."""
+        ts = _make_ts(
+            nodes=[
+                (1, 0),
+                (1, 0),
+                (1, 0),
+                (0, 1.0),
+                (0, 2.0),
+                (0, 2.0),
+            ],
+            edges=[
+                (0, 50, 4, 0),
+                (50, 100, 5, 0),
+                (0, 50, 4, 1),
+                (50, 100, 5, 1),
+                (0, 100, 3, 2),  # different path, not shared
+            ],
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == 7  # 6 + 1 PC
+        # 6 compressed edges + 1 preserved = 7
+        assert result.num_edges == 7
+
+    def test_multiple_groups(self):
+        """Two groups of children with different identical paths."""
+        # Children 0,1 share path through parent 4
+        # Children 2,3 share path through parent 5
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (1, 0), (1, 0), (0, 2.0), (0, 2.0)],
+            edges=[
+                (0, 100, 4, 0),
+                (0, 100, 4, 1),
+                (0, 100, 5, 2),
+                (0, 100, 5, 3),
+            ],
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == 8  # 6 + 2 PC
+        # 6 edges: 2 * (parent->PC, PC->child, PC->child)
+        assert result.num_edges == 6
+
+    def test_time_too_close_skipped(self):
+        """Group is skipped when PC ancestor time would not be valid."""
+        inc = arg_ops.PC_ANCESTOR_INCREMENT
+        ts = _make_ts(
+            nodes=[(1, 1.0), (1, 1.0), (0, 1.0 + inc / 2)],
+            edges=[(0, 100, 2, 0), (0, 100, 2, 1)],
+        )
+        result = arg_ops.compress_paths(ts)
+        # No compression possible, tree unchanged
+        assert result.num_nodes == ts.num_nodes
+        assert result.num_edges == ts.num_edges
+
+    def test_with_mutations(self):
+        """Mutations on compressed edges still reference correct nodes."""
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (0, 1.0)],
+            edges=[(0, 100, 2, 0), (0, 100, 2, 1)],
+            sites=[(50, "A")],
+            mutations=[(0, 0, "T")],
+        )
+        result = arg_ops.compress_paths(ts)
+        assert result.mutation(0).node == 0
+        assert result.mutation(0).derived_state == "T"
+
+    def test_no_edges(self):
+        """Tree sequence with no edges — nothing to compress."""
+        ts = _make_ts(nodes=[(1, 0)], edges=[])
+        result = arg_ops.compress_paths(ts)
+        assert result.num_nodes == 1
+        assert result.num_edges == 0
+
+    def test_min_parent_time_used(self):
+        """PC ancestor time uses minimum parent time across the path."""
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (0, 1.0), (0, 3.0), (0, 5.0)],
+            edges=[
+                (0, 50, 3, 0),
+                (50, 100, 4, 0),
+                (0, 50, 3, 1),
+                (50, 100, 4, 1),
+            ],
+        )
+        result = arg_ops.compress_paths(ts)
+        pc_node = result.node(5)
+        assert pc_node.time == 3.0 - arg_ops.PC_ANCESTOR_INCREMENT
+
+    def test_pc_ancestor_flags(self):
+        """New PC ancestor nodes have NODE_IS_PC_ANCESTOR flag set."""
+        ts = _make_ts(
+            nodes=[(1, 0), (1, 0), (0, 1.0)],
+            edges=[(0, 100, 2, 0), (0, 100, 2, 1)],
+        )
+        result = arg_ops.compress_paths(ts)
+        for i in range(3):
+            assert not arg_ops.is_pc_ancestor(result.node(i).flags)
+        assert arg_ops.is_pc_ancestor(result.node(3).flags)
diff --git a/tsinfer/arg_ops.py b/tsinfer/arg_ops.py
index 05e337bc..d9deb078 100644
--- a/tsinfer/arg_ops.py
+++ b/tsinfer/arg_ops.py
@@ -20,10 +20,15 @@
 Operations on ARG (Ancestral Recombination Graph) topology.
 """
 
+import collections
 import logging
+import time as time_
 
 logger = logging.getLogger(__name__)
 
+PC_ANCESTOR_INCREMENT = 1.0 / (1 << 32)
+NODE_IS_PC_ANCESTOR = 1 << 16
+
 
 def add_vestigial_root(ts):
     """
@@ -59,3 +64,100 @@ def add_vestigial_root(ts):
         # we can just sort almost the end of the table.
         tables.sort()
     return tables.tree_sequence()
+
+
+def is_pc_ancestor(flags):
+    """
+    Returns True if the node flags indicate a path compression ancestor.
+    """
+    return (flags & NODE_IS_PC_ANCESTOR) != 0
+
+
+def compress_paths(ts):
+    """
+    Find groups of child nodes whose entire edge sets are identical
+    (same set of (left, right, parent) tuples) and create an intermediate
+    path compression ancestor node for each group.
+
+    For each group of 2+ children with identical paths, a new node is
+    created with time slightly less than the minimum parent time in the
+    path. The children's edges are rewritten to go through the new node.
+    """
+    start_time = time_.time()
+    tables = ts.dump_tables()
+    node_time = tables.nodes.time
+    original_num_nodes = ts.num_nodes
+    original_num_edges = ts.num_edges
+
+    # Build path key for each child: the full sorted tuple of its edges
+    edges_by_child = collections.defaultdict(list)
+    for edge in tables.edges:
+        edges_by_child[edge.child].append((edge.left, edge.right, edge.parent))
+
+    path_map = collections.defaultdict(list)
+    for child, edges in edges_by_child.items():
+        key = tuple(sorted(edges))
+        path_map[key].append(child)
+
+    # Groups with 2+ children sharing identical paths get a PC ancestor
+    compressed_children = set()
+    new_edges = []
+    num_pc_nodes = 0
+    for path, children in path_map.items():
+        if len(children) < 2:
+            continue
+
+        # Compute PC ancestor time
+        min_parent_time = min(node_time[parent] for _, _, parent in path)
+        pc_time = min_parent_time - PC_ANCESTOR_INCREMENT
+        max_child_time = max(node_time[child] for child in children)
+        if pc_time <= max_child_time:
+            logger.debug(
+                "Skipping path compression group: computed time %f "
+                "is not greater than maximum child time %f",
+                pc_time,
+                max_child_time,
+            )
+            continue
+
+        # Create PC ancestor node
+        pc_node = tables.nodes.add_row(flags=NODE_IS_PC_ANCESTOR, time=pc_time)
+        num_pc_nodes += 1
+
+        # Add edges from each original parent to the PC node
+        for left, right, parent in path:
+            new_edges.append((left, right, parent, pc_node))
+        # Add edges from PC node to each child
+        for child in children:
+            for left, right, _ in path:
+                new_edges.append((left, right, pc_node, child))
+        compressed_children.update(children)
+
+    # Rebuild edge table: drop edges for compressed children, add new ones
+    tables.edges.clear()
+    for edge in ts.edges():
+        if edge.child not in compressed_children:
+            tables.edges.add_row(
+                left=edge.left,
+                right=edge.right,
+                parent=edge.parent,
+                child=edge.child,
+            )
+    for left, right, parent, child in new_edges:
+        tables.edges.add_row(left=left, right=right, parent=parent, child=child)
+
+    tables.sort()
+    result = tables.tree_sequence()
+    elapsed = time_.time() - start_time
+    logger.info(
+        "Path compression: %d PC nodes added, %d children compressed, "
+        "edges %d -> %d, nodes %d -> %d (%.2fs)",
+        num_pc_nodes,
+        len(compressed_children),
+        original_num_edges,
+        result.num_edges,
+        original_num_nodes,
+        result.num_nodes,
+        elapsed,
+    )
+    return result
diff --git a/tsinfer/matching.py b/tsinfer/matching.py
index 9c002216..477a22f6 100644
--- a/tsinfer/matching.py
+++ b/tsinfer/matching.py
@@ -155,13 +155,11 @@ def __init__(
         self,
         ts: tskit.TreeSequence,
         positions: np.ndarray,  # (num_sites,) int32 — inference site positions
-        path_compression: bool = True,
         num_alleles: np.ndarray | None = None,
     ):
         self._positions = np.asarray(positions, dtype=np.int32)
         self._num_sites = len(positions)
         self._sequence_length = ts.sequence_length
-        self._path_compression = path_compression
 
         logger.info(
             "Creating Matcher: ts=%d nodes, %d edges, %.1f MiB, RSS=%.1f MiB",
diff --git a/tsinfer/pipeline.py b/tsinfer/pipeline.py
index 93cde3d2..8fcbe2ec 100644
--- a/tsinfer/pipeline.py
+++ b/tsinfer/pipeline.py
@@ -35,7 +35,7 @@
 import tqdm
 import tskit
 
-from . import ancestors, config, grouping, matching, provenance
+from . import ancestors, arg_ops, config, grouping, matching, provenance
 from . import vcz as vcz_mod
 
 logger = logging.getLogger(__name__)
@@ -362,7 +362,6 @@ def _process_group(
         m = matching.Matcher(
             ts,
             positions,
-            path_compression=path_compression,
             num_alleles=reader.get_num_alleles(),
         )
         job_list = [job for _, job in group_jobs]
@@ -420,12 +419,15 @@ def _process_group(
         resources=tm.metrics.asdict(),
     )
 
-    return matching.extend_ts(
+    result = matching.extend_ts(
         ts,
         paired_results=paired_results,
         allele_mapper=allele_mapper,
         provenance_record=json.dumps(prov_dict),
     )
+    if path_compression:
+        result = arg_ops.compress_paths(result)
+    return result
 
 
 def match(