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The Windows NT Filesystem (NTFS) generates less file fragmentation compared to FAT16/FAT32. File fragmentation still occurs, but one doesn't have to defrag so often.

Windows NT provides an API that 3rd party defragmentation tools can use defragment partitions. The initial API for online defragmentation was rather limited, but have been extended with each new versions of Windows NT.

• Cannot defragment NTFS partitions with a cluster size larger than 4 KByte (Increased to 64 KByte with WinXP)
• Cannot defragment NTFS system files like MFT. (Limitation removed with WinXP)
• Cannot defragment directories (Limitation removed with Win2k)
• Cannot move a single cluster at a time but 16 at a time (Limitation removed with WinXP)
• More Info MS KB Q227463, MS KB 942092

To get around these limitation the 3rd party tools has to perform an offline/boot-time defragmentation. Windows 2000/XP includes a lite edition of Execsoft DisKeeper, which can perform an online defragmentation.

The following 3rd party freeware defragmenting tools are available:

• SysInternals PageDefrag (Offline defragmentation only)
• Execsoft DiskKeeper Lite Download DisKeeper (Has nag screen)
• O&O Defrag 2000 Mirror
• Kessels JkDefrag (Open Source)
• DIRMS & BUZZSAW (Command-line)
• UltraDefrag - Ultra Defragmenter (Opensource)
• IObit SmartDefrag
• Auslogics Disk Defrag
• Command line wrappers for dfrg.msc in Windows 2000 (XP has defrag.exe):
  • AutoDefrag
  • StartDefrag

There also exists tools that one can pay money for:

• Execsoft DiskKeeper Full version
• Raxco PerfectDisk
• O&O Defrag
• Norton Speeddisk for NT by Symantec
• Vopt

Related Compress Old Files causes defrag to hang in Win2k/WinXP

Credits ArsTechnica.com