I have DOS 6.2 installed on a flash drive. I've used it with my retro system. It works on old OSs because many are not even aware of USB and/or don't initialize USB during boot up.
If the version of DOS only recognizes FAT16 (or FAT12 LOL really old), you will need to use that format. There are later DOS boot discs available for the versions that came with Windows 95-ME (MS-DOS 7.x). You can make those into bootable flash drives and those recognize FAT32.