In this paper, we analyze the impact of polarization diversity on the capacity of multiple-input multiple-output (MIMO) channels in indoor environments. A channel measurement campaign was conducted at 2.4 GHz to measure the co-polarized and crosspolarized subchannels under line-of-sight (LOS) and non-line-ofsight (NLOS) channel conditions. We analyze the measured data in terms of Ricean K-factor, cross-polar discrimination (XPD) and subchannel correlations. A major contribution of this paper is that in these measured channels, we observe a coincidence of low K factors and high XPD. In such channels, MIMO systems employing polarization diversity incur SNR and diversity deficits, when compared to spatial configurations. On the other hand, our results indicate that polarization diversity can substantially lower the subchannel correlations for compact configurations, even in a LOS scenario. We draw a fair comparison in terms of capacity, between spatial MIMO configurations and systems using polarization diversity. We analyze the performance of 2 × 2 and 4 × 4 MIMO configurations for a range of values of inter-element spacing.Index Terms-Polarization diversity, MIMO, dual-polarized antennas, inter-element spacing, indoor channels.