A polarization mode compensation system and method using optical switch elements to establish incremental delays between different polarization modes of an optical data signal is provided. A polarization mode separator separates the optical data signal into first and second orthogonally polarized optical signals. A first variable switching delay element provides a first incremental propagation delay for the first polarized optical signal. A second variable switching delay element provides a second incremental propagation delay for the second polarized optical signal. The first and second variable switching delay elements consist of a series of optical switches optically interconnected by different incremental lengths of optical fiber. For example, 2.times.2 optical switches are provided for switching between a reference fiber segment and a respective delay fiber segment to provide a relative incremental propagation delay. A controller controls optical switches in the first and second variable switching delay elements to set first and second incremental propagation delays. In particular, the first and second polarized optical signals are incrementally delayed relative to one another so as to compensate for polarization mode dispersion. A beam combiner then combines the first and second polarized optical signals to form an optical output data signal which can be detected accurately by a receiver without the effects of polarization mode dispersion. In this way, optical data signals can be reliably transmitted over greater distances along a long-haul fiber optic dispersive medium at even greater bit-rates and bandwidth.