Abstract: Inter-satellite Communication reliant on Laser (LIC) is a promising technology for future satellite networks ascribed to ultra high capacity and high speed systems that can be accomplished with compact, light weight and lower power consumption optical equipments. This research explores the performance enhancement of 64×40 GB/sec optical wireless system incorporating polarization diversity for dense WDM. The high speed system is attained to fulfill the wide bandwidth requirements of data services in satellites by employing DWDM system at channel spacing of 50 GHz. In order to suppress the polarization crosstalk and nonlinearities among adjacent channels of WDM, a polarization diversity technique is included in the system. Moreover, comparative analysis is carried out for the polarization interleaved and conventional DWDM-OWC system. Also, it has been found that system carrying different state of polarization among adjacent channels, shows enhanced performance as compared to conventional systems in terms of Q-factor, BER and SNR.