A recently proposed Wavelet Domain Communication System (WDCS) using transform domain processing demonstrated excellent interference avoidance capability under adverse environmental conditions. This work extends previous results by 1) incorporating a wavelet packet decomposition technique, 2) demonstrating M-Ary signaling capability, and 3) providing increased adaptivity over a larger class of interference signals. The newly proposed packet-based WDCS is modeled and its performance characterized using MATLAB?. In addition, the WDCS response to two scenarios simulating Doppler effects and physical separation of transceivers are obtained. The fundamental metric for analysis and performance evaluation is bit error rate (Pb). Relative to the previous non-packet WDCS, the proposed packet-based WDCS provides improved/comparable bit error performance in several interference scenarios -- single-tone, multiple-tone, swept-tone, and partial band interference is considered. Interference 'avoidance' capability was characterized for a bit energy-to-noise power level (Eb/N0) of 4.0 dB and interference energy-to-signal energy (I/E) ratios ranging from 0.0 dB to 16.0 dB. For binary, 4-Ary, and 8-Ary CSK data modulations, the packet-based WDCS exhibited average Pb improvements of 6.7, 9.2, and 12.0 dB, respectively, for partial band and swept-tone interference. For single and multiple-tone interference, improvements of 8.0, 12.4, and 15.7 dB were realized. Furthermore, bit error sensitivity analyses indicate the WDCS communicates effectively under non-ideal 'real-world' conditions (transceivers located in dissimilar environments) while exhibiting average Pb improvements of 5.4, 5.1, and 5.8 dB, relative to systems having no interference suppression.