How to reduce the size of VMware disk

There are three steps:

1. Defragment (no need to un/remount anything)

   sudo e4defrag /

   Ignore any errors. Some files like symlinks and device files can't be defragmented.

2. Zero-fill all unused space so VMware knows it's indeed unused:

   dd if=/dev/zero of=wipefile bs=1M; sync; rm wipefile

3. Run the shrink operation:

   sudo vmware-toolbox-cmd disk shrinkonly

I've found the solution – you have to compact your hard drive:

Virtual Machine - Settings - General - Clean Up Virtual Machine

Open VMware Toolbox in the guest (as root) and shrink the disk. (Documentation)

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If you don't have VMware Tools, you can shrink the disk manually in two steps. First, clear the free space on the virtual disk using a tool like zerofree. Zerofree is available in Ubuntu, but since it requires the guest OS filesystem to be mounted read-only you may want to run it off a live CD. Parted Magic reportedly includes zerofree.

After zeroing the free space, open Virtual Machine Settings and compact the virtual disk.