A method of updating a computer file from an old file into a new file comprises blocking the new file and the old file into fixed-size blocks, maintaining a window (collection of contiguous blocks) for each file on which lookup preprocessing has been performed, and performing match processing on each new file block in turn (comparing against both the old and new windows) using a key-sampling technique combined with approximate matching. For each new file block, the match information is then optimized for coding efficiency and encoded into a patch file that describes an algorithm for converting the old file into the new file. The patch file application method and apparatus then performs the algorithm described in the patch file. The method uses a fixed amount of random-access memory regardless of the sizes of the two files and uses no temporary mass storage. In addition, the method has a running time roughly proportional to the size of the new file and allows the use of parallel processing to reduce the time required. The system and method produce patch files which are smaller than prior systems and methods, and allow the operator of the apparatus to perform an efficiency/effectiveness trade-off.