DOS doesn't want the whole drive, it wants to be in the first primary partition of your hard disk. If your first partition (what Windows XP shows you as C: ) isn't FAT16, you're screwed, assuming you are using an actual DOS version 6.x and earlier.
Starting with DOS 7 (what comes with Windows 95 that can actually be used as a standalone DOS more or less successfully), you could use FAT32 on your primary partition.
But judging from the minimal details you give in your post, it looks like you are trying to use a DOS 6.x or earlier on a hard disk with a primary partition in FAT32. This is a no-go.