© 2009-2012 IEEE. We propose a novel chirp compensation scheme for directly modulated three-section distributed Bragg reflector (3s-DBR) lasers in applications of the time- and wavelength-division multiplexed passive optical network systems. The frequency chirp of 3s-DBR lasers induced by direct modulation is investigated through extensive numerical simulations based on the time-domain travel-wave model. To overcome the signal distortions resulting from the frequency chirp due to direct modulation, we extend on our novel idea of frequency chirp compensation technology with inherent characteristics of DBR-type tunable lasers. Q factors and extinction ratio for different system transmission lengths are analyzed and compared. Large dispersion tolerance of the system is achieved by using the chirp compensation scheme.