How to shrink VMware Fusion virtual disks

VMWare has an included tool (vmware-vdiskmanager) for shrinking virtual disks. But before performing the shrink you need to zero out the unused disk space first. So start your VM and do a

dd if=/dev/zero of=/empty_file; rm /empty_file

After that, shut down the VM and start the vmware-vdiskmanager, which is located in /Applications/VMware (OSX 10.7.2, VMware Fusion 4) and shrink the disk:

./vmware-vdiskmanager -k pathtodisk.vmdk