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Optical communication system gained significant importance from the last decade because of its high bandwidth transmission capabilities. However, dispersion limits the performance of the system by reducing its bandwidth and increasing the BER. The effect of dispersion may be reduced by dispersion compensation fiber (DCF). In this paper, an optical communication system is designed using a single mode fiber and its performance is evaluated using DCF at different distances. An optimum length of DCF is calculated for 5, 10, 15 and 20 Km ranges. It improves the transmission capacity of the system by reducing the nonlinearities of fiber. The simulative investigation is done in terms of Q factor, power, noise and eye diagram.