A system and method for managing disk space in a thin-provisioned storage subsystem. If a number of free segments in a free segment pool at a storage subsystem is detected as below a desired minimum, one or more of the following is performed: selecting and adding logical devices (LDEVs) from an internal storage as free segments to the free segment pool, transitioning LDEVs to a virtual device (VDEV), and/or selecting and adding LDEVs from an external storage as free segments to the free segment pool. The transitioning includes identifying partially used or completely used LDEVs and transitioning these to the VDEV. Data migration may also occur by: selecting a source segment at a VDEV for migration, reading data from the source segment, writing the data to a target segment, the target segment being a free segment from the free segment pool, and assigning the target segment to the VDEV.