In this paper, a crosstalk-mitigated transmission scheme in arrayed waveguide grating router (AWGR) based two dimensional infrared beam-steered optical wireless communication (OWC) system is proposed for indoor applications. By creating polarization orthogonality between the odd and even AWGR channels, high crosstalk tolerance between spectrally overlapping AWGR channels is realized experimentally. Because two signals with orthogonal polarization states will not beat with each other in a photodiode. The optical crosstalk on the orthogonal polarization state will not generate a beat note upon detection and thus crosstalk in the electrical domain can be largely reduced. Reduced crosstalk leads to a reduction in the required spectral guard band and/or an improved tolerance to spectral overlap, which allows higher spectral efficiency. Moreover, the port number of an AWGR can be increased by simply shortening the spatial gap between adjacent output waveguides on a chip. The higher port number can support the high spatial resolution of the steered OWC system. This technique can also tolerate the wavelength misalignment between AWGRs and lasers, which relaxes the design of low crosstalk AWGRs and high wavelength stable lasers. A 20 Gbit/s data rate, four-level pulse amplitude modulation OWC transmission has been experimentally demonstrated over 1.2-m free-space link. The experimental results show that the proposed scheme can maintain stable, low crosstalk impact with an apparent improvement of the responsivity.