In freespace laser communication systems, optical background noise rejection is a very important issue. We have designed and built a building to building direct detection optical communication system that uses a Faraday Anomalous Dispersion Optical Filter (FADOF) in the receiver. The FADOF is a narrow bandpass optical filter, which can provide a background noise rejection of 105 approximately 106, while transmitting the signal with up to 80% efficiency. The FADOF also has a signal bandwidth that is variable between 0.5 GHz and 5 GHz, a field-of-view that is flat over +/- 20 degree(s). FADOFs offer new capabilities to freespace laser communication by effectively reducing the solar background radiation that reaches the photodetector. Using the FADOF receiver, we have demonstrated that 27nW of received signal power gives a bit error rate of 10-6 (limited by the photoreceiver electronic noise) independent of solar noise up to 0.15Watt. We also repeated these measurements under the same operation conditions after replacing the FADOF with an interference filter. The experiments showed three orders higher background noise rejection capability for the FADOF receiver.© (1994) COPYRIGHT SPIE--The International Society for Optical Engineering. Downloading of the abstract is permitted for personal use only.