The use of Bell Laboratories layered space-time (BLAST) architecture as a digital signal processing algorithm is proposed in this letter. It is aimed at improving the nonlinearity tolerance of a polarization division multiplexing (PDM) coherent optical orthogonal frequency division multiplexing (CO-OFDM) system. The application of this channel estimation algorithm simulates system performance under different dispersion compensation (DC) maps. Simulation results show that, compared with intra-symbol frequency-domain averaging (ISFA) algorithm, at least 5-dB Q-factor improvement is achieved for the PDM CO-OFDM system at 112-Gb/s data rate over an 800-km standard single-mode fiber (SSMF) without DC.