The impact of imperfect modulation depth on crosstalk induced penalty in optical switched systems is theoretically and experimentally investigated. A nonlinear relationship with a clear``knee' ' is observed, indicating an optimum modulation index of 8 dB.Homodyne crosstalk exists when at the input of an optical receiver, in addition to a desired signal, there is also one or many other signals of the same wavelength. This can be the result of insu cient isolation between channels in optical switches or the presence of internal re¯ections of the desired signal within the system. The result of these additional signals at the receiver is a beat noise. Past works investigated the eOE ect of this noise and the power penalty that it introduces, including the eOE ect of modulation index, [1,2]. However in these papers the beat noise statistics are considered gaussian, which is not the case [3]. Gaussian approximation of this noise in calculating BER and penalties has proven to be inaccurate [3± 5]. More accurate models provide better results [4± 5]. This paper covers the case of a single interfering signal and the in¯uence of the extinction ratio on the penalty caused by the beat noise. The new treatment provides better results when compared to former works. TheoryThe modulated laser electrical ® eld is de® ned by E 1 …t †ˆD 1 …t † cos …! 0 t ‡ 1 …t † †; …1 †