Cell-mediated compaction of the extracellular matrix (ECM) plays a critical role in tissue engineering, woundhealing, embryonic development, and many disease states. The ECM is compacted as a result of cellular traction forces. Wehypothesize that a cell mechanically remodels the nearby ECM until some target conditions are obtained, and then the cell stopscompacting. A key feature of this hypothesis is that ECM compaction primarily occurs in the pericellular region and the propertiesof the ECM in the pericellular region govern cellular force generation. We developed a mathematical model to describe theamount of macroscopic compaction of cell-populated collagen gels in terms of the initial cell and collagen densities, as wellas the final conditions of the pericellular environment (defined as the pericellular volume where the collagen is compacted(V) and the mass of collagen within this volume (m)). This model qualitatively predicts the effects of varying initial cell andcollagen concentrations on the extent of gel compaction, and by fitting V and m, provides reasonable quantitative agreementwith the extent of gel compaction observed in experiments with endothelial cells and fibroblasts. Microscopic analysis ofcompacted gels supports the assumption that collagen compaction occurs primarily in the pericellular environment.