We adopt the concept of channel diagonalization to time-frequency signal expansions obtained by DFT filter banks. As a generalization of the frequency domain channel representation used by conventional orthogonal frequency-division multiplexing receivers, the time-frequency domain channel diagonalization can be applied to time-variant channels and aperiodic signals. An inherent error in the case of doubly dispersive channels can be limited by choosing adequate windows underlying the filter banks. We derive a formula for the mean-squared sample error in the case of wide-sense stationary uncorrelated scattering (WSSUS) channels, which serves as objective function in the window optimization. Furthermore, an enhanced scheme for the parameterization of tight Gabor frames enables us to constrain the window in order to define paraunitary filter banks. We show that the design of windows optimized for WSSUS channels with known statistical properties can be formulated as a convex optimization problem. The performance of the resulting windows is investigated under different channel conditions, for different oversampling factors, and compared against the performance of alternative windows. Finally, a generic matched filter receiver incorporating the proposed channel diagonalization is discussed which may be essential for future reconfigurable radio systems.