We experimentally demonstrated a 256-ary quadrature amplitude modulation (256QAM) direct-detection optical orthogonal frequency division multiplexing (DDO-OFDM) transmission system utilizing a cost-effective directly modulated laser (DML). Intra-symbol frequency-domain averaging (ISFA) is applied to suppress in-band noise while the channel response estimation and Discrete Fourier Transform-spread (DFT-spread) is used to reduce the peak-to-average power ratio (PAPR) of the transmitted OFDM signal. The bit-error ratio (BER) of 15-Gbit/s 256QAM-OFDM signal has been measured after 20-km SSMF transmission that is less than 7% forward-error-correction (FEC) threshold of 3.8 × 10(-3) as the launch power into fiber is set at 6dBm. For 11.85-Gbit/s 256QAM-OFDM signal, with the aid of ISFA-based channel estimation and PAPR reduction enabled by DFT-spread, the BER after 20-km SSMF transmission can be improved from 6.4 × 10(-3) to 6.8 × 10(-4) when the received optical power is -6dBm.