Compressed air is directed through a loosely packed bed of highly engineered, water resistant glass fibers. Water droplets and oil aerosols entrained in the air stream are captured by the fibers through the mechanisms of direct interception, inertial impaction, and interception resulting from Brownian motion. The captured aerosols move along the fibers and coalesce into larger droplets that gravitate to the bottom of the housing and are discharged from the system by an optional automatic drain valve.