Orthogonal Frequency Division Multiplexing (OFDM) is an attractive multicarrier technique for mitigating the effects of multipath delay spread of radio channel, and hence accepted for several wireless standards as well as number of mobile multimedia applications. Alongside its advantages such as robustness against multipath fading, spectral efficiency and simple receiver design, OFDM has two major limitations. One of these is its sensitivity to carrier frequency offsets (CFO) caused by frequency differences between the local oscillators in the transmitter and the receiver and the other is high peak to average power ratio (PAPR). This high PAPR is due to the summation of sinc-pulses and non-constant envelope. Therefore, RF power amplifiers (PA) have to be operated in a very large linear region. Otherwise, the signal peaks get distorted, leading to intermodulation distortion (IMD) among the subcarriers and out-of-band radiation. A simple way to avoid is to use PA of large dynamic range but this makes the transmitter 1 Dr. Nasir D. Gohar is currently Professor/HoD, Communication Systems Engineering Department at NUST School of Electrical Engineering and Computer Science, Islamabad. ivcostly. Thus, it is highly desirable to reduce the PAPR. In order to reduce the PAPR, several techniques have been proposed such as clipping, coding, peak windowing, Tone Reservation (TR), Tone Injection (TI), Selected Mapping (SLM) and Partial Transmit Sequence (PTS). After studying these schemes, it was found that most of these methods are unable to achieve simultaneously a large reduction in PAPR with low complexity, low coding overhead and without performance degradation and transmitter/ receiver symbol handshake. In this study, an OFDM transceiver is proposed which makes use of hybrid modulation scheme instead of conventional modulator like QAM or PSK. In addition to improved BER performance both in AWGN and frequency selective fading channel, it exhibits low PAPR. The modified OFDM transceiver makes use of multilevel QAM constellations, where the level of QAM is decided by specific number of bits chosen arbitrarily from a group of bits to be encoded in the QAM symbol. The simulated results show that PAPR is considerably reduced, though at the cost of a slight increase in detection complexity. Like PTS or SLM, it works with arbitrary number of subcarriers but needs no side information to be transmitted. It is also shown that PAPR reduction capability of the proposed system is comparable to PTS. However, to further reduce the PAPR, one has to alter this hybrid MQAM/LFSK (HQFM) signal sets like in PTS, but there is no need of transmitting any additional side information. At the receiver, these deformations can be removed in one or two iterations, thus, original data retrieved but with a little increase in the receiver complexity.