Tunable optical filters are fundamental components in wavelength-division multiplexed communication networks. Practical filters should be low-loss, polarization-independent and impose little additional system noise penalty. We report the first system demonstration of a polarization-independent acousto-optic filter centered at 1500 nm with a narrow bandpass (1.3 nm) and broad continuous tuning range (145 nm). We show that filtered transmission of 990 Mb/s pseudorandom data incurs less than 1 dB of additional noise penalty, less than 0.5 dB of which is dependent on the signal state of polarization. In addition, this versatile polarization-diversity configuration allows for multiple-channel selection and operation as a 2 x 2 wavelength-channel switch. © 1990 IEEE