Optical Networks have been evolving rapidly in the last four decades. This revolution is mainly driven by the increasing demand for higher bit rates at the lowest investments possible. The telecom industry has been introducing new technologies that will reduce the cost of Bandwidth. Nowadays, Optical Networks with the various multiplexing techniques are playing a major role in the provisioning of high bandwidth at affordable rates. Multiplexing is the simultaneous transmission of two or more signals on the same link. It is being used as a way to increase the attainable capacity of optical fiber especially since laying more fiber is.costly. In order to increase the bit rates beyond that of TDM, which requires high-speed electronics, the transmission, multiplexing, switching, and processing of signals must be performed in the optical domain. The most widely used optical multiplexing technique nowadays is Wavelength Division Multiplexing (WDM). The general structure of a WDM network consists of different components including transmitters, multiplexers, amplifiers, wavelength routers, de-multiplexers and receivers. Wavelength routers, such as Optical Cross Connects, have one or more input and output ports and are used to route signals received at input ports to the same or different output ports. The aim of this thesis is to study the effect of crosstalk on the performance of Optical Cross Connects, which form a major part of DWDM networks. This is done through OptSim simulation and analysis of a 2x2 OXC within a DWDM system. Crosstalk is then applied to the system and the performance is observed while varying parameters such as Channel Spacing, Filter Bandwidth, Loop Length, and Laser Linewidth. Performance indicators such as Q value, BER, and Eye Diagrams are used to evaluate the system's performance. It is observed from the experiment that the performance can be improved by increasing the channel spacing for example. Another method is to decrease the distance between amplifiers. However, we need to balance between doing this and watching out for the overall cost of the network. Part of this thesis is also to study the possibility of carrying the IP traffic directly over DWDM. We observe from the study that it is possible to do this by using IP nodes with integrated OXC functionalities. The integration of IP and DWDM layers can be achieved using protocols such as Multi Protocol Label Switching (MPLS) and Generalized MPLS (GMPLS).