We show that significant improvements in transmission performance can be achieved in differential phase-shift-keyed systems by use of lumped nonlinear phase-shift compensation (NPSC). A simple device that provides NPSC is described. In a 10-Gbit/s single-channel system based on dispersion-managed solitons, an improvement in performance (Q(2)) of almost 6 dB is realized by NPSC after 6000 km of transmission. In dense wavelength-division multiplexed systems, interchannel cross-phase modulation reduces the effectiveness of NPSC slightly. (C) 2002 Optical Society of America.