In order to advance 5G wireless communication technology, this paper presents a novel method for lowering the Peak-to-Average Power Ratio (PAPR) in Multiple-Input Multiple-Output Orthogonal Frequency-Division Multiplexing (MIMO-OFDM) systems. It is called the Dynamic Thresholding-based μ-law (DT-μ-law) logarithmic companding technique, and it greatly improves the performance of the system by effectively broadcasting data streams on a single frequency across multiple channels. This technique's ability lies in compressing the amplitude of the transmitting signal beyond a specific threshold value before the parallel-to-serial conversion block in the MIMO-OFDM system. It employs the direct insertion of an offset value into the guard bits, rather than using a step function for the amplitude reduction process, which can reduce additional system complexity and data loss during signal expansion at the receiver end. This technique is more adequately suited for dynamic data rate shifting and interference within a limited threshold value. The dynamic thresholding value (α) is determined by calculating the median and standard deviation of the μ-law companding. This ensures the effective compression of higher amplitude signals at the transmitter, using μ-law log companding. To streamline the decompanding process at the receiver, an offset is introduced, facilitating a smoother transition and reducing complexity. The results demonstrate that the proposed DT- μ-law companding technique significantly improves PAPR reduction while maintaining low Bit Error Rates (BER) and high average spectral power efficiency. This efficiency is optimal when the μ value is maintained within the range of 4–4.5. Furthermore, it was observed that an increase in the μ value corresponds to a decrease in both PAPR value and BER. Specifically, at a signal-to-noise ratio of 15.2 dB, the BER stabilizes at 10−1. Compared to existing methods like the Max-Min Decomp-SLM approach, this technique offers lower Signal-to-Noise Ratio (SNR) values, thereby enhancing spectral efficiency and maximizing data capacity.