Our study contains performance and design of a spectral amplitude code-optical code division multiple access (SAC-OCDMA) system using proposed modified new diagonal (MND) code. The proposed MND code has advantages as very low cross-correlation value compared to other code sequences. Also the code has a short length for the higher code weight value. Furthermore, due to its enormous code property, it also introduces very low multiple access interference. Thus the MND code-based SAC-OCDMA system permits a higher number of users. The MND code construction method is also explained, which is very easy using diagonal matrices. Based on the theoretical analysis, bit error rate (BER) performance of MND code AND-subtraction scheme compare with conventional codes is better than random diagonal code, Pascal’s triangle matrix code (PTMC), and multidiagonal (MD) code, which makes it spectral efficient. It provides 5 dB lower BER compared to MD code and PTMC for 90 users. Simulation of the MND code-based system for four users with 2 Gbps data rate has been successfully demonstrated using the AND-subtraction scheme and the direct detection scheme.