The demand for increased capacity in wireless communication networks has motivated recent research activities toward wireless systems that exploit the concept of smart antenna and space selectivity. Efficient utilization of limited radio frequency spectrum is only possible to use smart/adaptive antenna system. The smart antenna radiates not only narrow beam towards desired users exploiting signal processing capability but also places null towards interferers, thus optimizing the signal quality and enhancing capacity. The existing algorithm for adaptive beam-forming (LMS (Least Minimum square) and CMA (Constant modulus algorithm)) is having some issues regarding performance. These issues can be resolved and performance can be improved by doing modification in existing LMS algorithm. In this work, a modified digital beam forming algorithm using LMS algorithm is developed. The aim behind developing this algorithm is to improve steady state response, reduce the phase difference between input and output signal and to reduce the error magnitude between input and output signal. The algorithm is modified by computing and combining the antenna response for interferer signal and data signal to the interferer signal and data signal. This response is calculated for both data signal and interferer signal using the distance between the antennas (π/2) and direction angle of signals. We also analyze the performance of Modified (LMS) algorithm for smart antenna systems which very important for smart antenna design. The performance of proposed method is also compared with existing CMA. The performance parameters for comparison are phase response, magnitude response, and error magnitude. MATLAB R2013 has been used as an implementation platform using wireless communication and antenna tool box.