Squashfs as rootfs


I'm trying to add option to grub menu (amongst other options) to boot
from squashfs image. But 'root=live:/path/tofile' doesn't work. I didn't
find anything useful on the internet. Anybody can point me in right

Maybe better choice is to replace grub with isolinux?
I have working solution with iso with squashfs booting through PXE, but
i don't know how to do this in grub.