How to reduce line spacing in single-paragraph biblatex bibliography with a small font size

The issue is that, if horizontal mode is not ended in the bibliography environment, then the value of baselineskip reverts to what it is elsewhere in the document. This is discussed in this answer to Reduce line spacing when using smaller font size in an environment.

You can end the paragraph (i.e., end horizontal mode and force the material to be broken into lines) by putting endgraf into the <end code> part of the defbibenvironment command:

defbibenvironment{bibliography}
  {}
  {endgraf}
  {addspace}

You have to use endgraf here instead of par, otherwise you'll get an error (see When is it better to use par than endgraf? for some discussion of the differences between par and endgraf).

Here is the full MWE:

begin{filecontents*}{jobname.bib}
@article{a1,
  author = {Smith, Jane},
  journal = {Nature},
  volume = {7},
  pages = {201-204},
  year = {1999},
}
@article{a2,
  author = {Smith, Jane},
  journal = {Nature},
  volume = {7},
  pages = {201-204},
  year = {2000},
}
@article{a3,
  author = {Smith, Jane},
  journal = {Nature},
  volume = {7},
  pages = {201-204},
  year = {2001},
}
@article{a4,
  author = {Smith, Jane},
  journal = {Nature},
  volume = {7},
  pages = {201-204},
  year = {2002},
}
@article{a5,
  author = {Smith, Jane},
  journal = {Nature},
  volume = {7},
  pages = {201-204},
  year = {2003},
}
end{filecontents*}
documentclass{article}

usepackage[american]{babel}

usepackage{csquotes}

usepackage[backend=biber,
  style=authoryear-comp,
  maxcitenames=2,
  maxnames=1,
  minnames=1,
  firstinits=true]{biblatex}

addbibresource{jobname.bib}

renewcommand*{bibfont}{fontsize{5pt}{7pt}selectfont}

defbibenvironment{bibliography}
  {}
  {endgraf}
  {addspace}

begin{document}

nocite{*}
printbibliography

end{document}

And here is the resulting output with something that looks like single line spacing: