Region-based compilation repartitions a program into more desirable compilation units for optimization and scheduling, particularly beneficial for ILP srchitectures. Wtih region-based compilation, the compiler can control problem size and complexity by controlling region size and contents, expose interprocedural scheduling and optimization opportunities without interprocedural analysis or large function bodies, and create compilation units for program analysis that more accurately reflect the dynamic behavior of the program. This paper presents a region formation algorithm that eliminates the high compile-time memory costs due to an aggressive inlining prepass. Individual subregions are inlined in a demand-driven way during interprocedural region formation. Our experimental results on a subset of the SPEC benchmarks demonstrates a significant reduction in compile-time memory requirements with comparable runtime performance.