Definitely, you should defrag database files like Exchange, SQL or Oracle. But you must be aware that there is at least the size of the database files required to move them into a continous space. Depending on the level of fragmentation, some defrag tools offer a partial defragmentation that allows to defrag the files with even less space. You can easily identify these files when analyzing the disk and check for large files that are currently locked. This locking is the reason why you cannot defrag them online. You should use an offline defrag, which causes downtime of your database during the defragging. Keep that in mind!
This was first published in February 2002