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A novel ultracompact 2×2 wavelength division multiplexer (WDM) for 1.55-μm operation based on highly dispersive two-mode interference (TMI) was designed, theoretically modeled, and verified using a finite-difference-time-domain (FDTD) method. A two-moded waveguide assisted with a dispersive tooth-shaped grating provided a mode-dependent reflection band of central wavelength at 1.55 μm. The wavelengths of 1538 and 1572 nm that were at the band edges and had the lowest reflection losses and relatively high dispersion were selected for wavelength multiplexing. The result showed that the wavelengths were separated by grating dispersion in a coupler length of 75 μm which was much shorter than the required length of 1.1 mm in a regular TMI multiplexer of no grating. Insertion loss of about 1.7 dB and channel contrast of about 12 dB were achieved.