SummaryThe application of orthogonal frequency division multiplexing (OFDM) in a visible light communication (VLC) system increases the peak‐to‐average power ratio (PAPR) of the system. Owing to high PAPR, the intrinsic nonlinearity of LED is an important issue in an asymmetrically clipped DC‐biased optical OFDM (ADO‐OFDM) system. In this paper, a hybrid scheme is proposed to reduce the PAPR as well as to mitigate the nonlinearity in an ADO‐OFDM system. The proposed method is a combination of two ADO‐OFDM formats: precoded ADO‐OFDM and μ‐ADO‐OFDM. The preprocessing of the input using a predetermined matrix (PM) in the precoder relieves the need for a handshake at the receiver. The compression of the peak values and enhancement of low amplitudes of the precoded signal in the time domain yield a low PAPR of 2.4 dB only. Besides PAPR reduction, the union of precoder and compander boosts the bit error rate (BER) performance of the traditional ADO‐OFDM system for μ≤128. The combination of precoder with compander decreases the power requirements for high bit rate transmission for a reference BER of 10−3. In this work, nonlinearity is quantified in terms of error vector magnitude (EVM) in percent. The hybrid scheme shows an EVM of 17.23% for 0 dB input backoff power (IBO) much less than 66.4% EVM for a simple ADO‐OFDM system. In addition to low PAPR and mitigation of nonlinearity, the proposed method shows the improvement in power spectral density (PSD) of the system.