Abstract-The demand for higher speed at a lesser transmission cost per bit resulted in growth of optical networks with improved spectral efficiency even at narrower channel spacing. Incorporation of multilevel modulation formats in DWDM system led to the exploration of the 25 GHz channel grid, popularly known as Ultra Dense Wavelength Division Multiplexed (UDWDM) systems, opening new research frontiers. At such channel spacing's, nonlinear optical effects impose severe system impairments and hence robust modulation schemes are currently being investigated. This paper presents a simulative model to implement and analyze alternative polarized DQPSK modulated UDWDM system to evaluate its resilience to XPM and fiber nonlinearity. An UDWDM system supporting 32 channels, each operating at 40 Gbps and spaced at 25 GHz is studied numerically for long-haul optical communication system using OptiSystem simulator to estimate OSNR penalties to mitigate XPM effects. The major detrimental factors encountered in link design have been estimated to evaluate the system performance in terms of Q value for different number of channels and with varied input power. The analysis reports acceptable performance for DQPSK format up to a link distance of 1500 Km and also claims a better tolerance to dispersion and nonlinearities at higher input power levels.Index Terms-UDWDM, DQPSK, modulation formats, dispersion compensation I. INTRODUCTION The exponential growth in global broadband data services and advanced internet traffic in telecommunication networks worldwide has triggered a sharp rise in the demand for an extremely high transmission capacity. Optical fiber communication systems form the backbone of high speed transport infrastructure enabled by its potentially unlimited capabilities [1,2] Journal of Microwaves, Optoelectronics and Electromagnetic Applications, Vol. 15, No. 4, December 2016 without the need of bottleneck-prone opto-electronic/electro-optic conversions [4]. Moreover, the deployment of Dispersion Compensating Fibers (DCF) to curtail the deleterious effects of chromatic dispersion makes long distance transmission at high-data-rate a possibility [5]. Inspite of these attempts to tap the fiber potential to its fullest, some suitable engineering needs to performed to circumvent the phase distortions generated due to undesirable non-linear interactions, which accumulate as the multiplexed signals propagate over the fiber length [6 ,7].Current demand for high speed services, especially those contributing to the ever growing IP traffic, requires spectrally efficient DWDM systems [8,9]. Transmission at 40 Gbps is definitely more intriguing than at 10 Gbps spacing due to physical layer constraints, such as polarization mode dispersion (PMD), fiber non-linearities, accumulated amplified spontaneous emission (ASE) noise, chromatic dispersion (CD), and spectrum narrowing resulting due to filter cascading [10]. Such systems require higher signal-to-noise ratio, which necessitates increased power per channel and these cha...