I found these at Wally world today for a dollar for eight towels. These are more of a novelty than anything but they are very compact just don't get them wet until you are ready to use them.

http://www.eztowel.com/index.php
http://www.uscav.com/productinfo.aspx?productID=16616&TabID=548

EZ Towels are durable, full-sized towels made of 100% Rayon. EZ
Towels come compacted in a convenient tablet size, all you need to do
is add water and watch it grow! Once the EZ Towel is activated,
simply unroll and unfold and it becomes an 8 1/2 in. X 9 1/2 in. towel that is ready for use.
EZ Towels are soft, durable, and bio-degradable.

Great for home, office, restaurants, school, daycare, camping,
fishing, and more!