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Abstract: This paper discusses the data transmission using Dense Wavelength Division Multiplexing (DWDM) for 16 optical channels in an optical transmission system. The decision problem is to find the most cost-effective combination of WDM equipment and fiber that increases the capacity of the network to an extent where we can handle all our expected demand. We have applied various hybrid methodology like varying bit rates, different modulation formats like RZ, NRZ and Duo-binary as a tool for the capacity enhancement. We discuss the concept of optical amplifiers and dispersion compensated fibers. More emphasis has been given to Erbium doped fiber amplifier as its combination with WDM technology emerges as a vital solution to speed and bandwidth problem. In this proposed work Optisystem 7.0 software has been used to design and analyse the performance of the system. The simulation results are also discussed. The results are characterized in terms of parameters like Q-factor, Bit Error Rate (BER), etc. deduced from the eye diagram analyzer.