In this paper, antenna grouping together with maximum ratio transmission (MRT), maximum ratio combining (MRC), and interference cancellation is used to improve the performance of MIMO systems. In particular, the transmit and receive antennas are divided into two antenna groups to reduce correlation between antennas and to improve spatial separation between data streams. Analytical expressions for the outage probability, symbol error rate, channel capacity, and total channel capacity of the MIMO MRT-MRC system with antenna grouping and interference cancellation are derived. The effect of the power allocation to the two antenna groupings on system performance is also studied. The numerical results show that an optimal value of the power allocation coefficient exists that achieves a maximum total channel capacity. Further, for a given power allocation coefficient, there exists an antenna configuration that maximizes the total channel capacity of the considered MIMO MRT-MRC system. These findings allow to select both the optimal power allocation coefficient for a given antenna grouping and the preferable antenna grouping for a given power allocation coefficient that maximize the total channel capacity of the system.