Phasor Measurement Units (PMUs) have enabled real-time power grid monitoring and control applications realizing an integrated power grid and communication system. The communication network formed by PMUs has strict latency requirements. If PMU measurements cannot reach the control centre within the latency bound, they will be invalid for calculation and may compromise the observability of the whole power grid as well as related applications. To address this issue, this study proposes a model to account for the power grid observability under communication constraints, where effective capacity is adopted to perform a cross-layer statistical analysis in the communication system. Based on this model, three algorithms are proposed for improving power grid observability, which are an observability redundancy algorithm, an observability sensitivity algorithm and an observability probability algorithm. These three algorithms aim at enhancing the power system observability via the optimal communication resource allocation for a given grid infrastructure. Case studies show that the proposed algorithms can improve the power system performance under constrained wireless communication resources. scalability [11]. Hence, wireless communication is playing a more and more important role in supporting the communication needs of modern grid [12]. In IEEE Standard 2030.2-2015 [13], the application of wireless technology for the communication between components within a transmission network and the operation control centre has been identified. There have been various researches addressing the wireless communication network in supporting communication between PMUs [14-17] as well as components of SCADA system [18-20]. Yet wireless communication is broadcasting in nature, which makes propagation signal prone to the influence of physical environment. The effect of channel fading will induce communication system performance fluctuation and then result in communication delay. However, the communication delay's influence on the power system observability performance as well as the inter-discipline study of the power system and communication system has not been well addressed, which is the major focus of this paper. Communication latency is a link layer metric used in the Open Systems Interconnection (OSI) model. In practical systems, communication delay has many sources. Some latencies are fixed or bounded, such as system overheads. Others are time-varying and hard, if not impossible, to be bound. One major uncertainty contributed to this time-varying latency is due to the communication channel fading effect. However, typically latency is a metric considered in link layer but not physical layer, where the latency study is further complicated when the channel has parameters that change with time. Therefore, it requires sophisticated cross-layer analysis to study such problems. Another challenge is that, in most fading channel scenarios, it is not feasible to provide a deterministic bound for the communication delay, which is a consequence ...