The implementation of orthogonal frequency division multiplexing (OFDM)-based physical layers suffers from the effect of In-phase and Quadrature-phase (IQ) imbalances in the front-end analog processing. The IQ imbalances can severely limit the achievable operating signal-to-noise ratio (SNR) at the receiver and, consequently, the supported constellation sizes and data rates. In this paper, the effect of IQ imbalances on OFDM receivers is studied, and system-level algorithms to compensate for the distortions are proposed. The algorithms include post-fast Fourier transform (FFT) least-squares and least mean squares (LMS) equalization, as well as pre-FFT correction using adaptive channel/distortion estimation and special pilot tones to enable accurate and fast training. Bounds on the achievable performance of the compensation algorithms are derived and evaluated as a function of the physical distortion parameters. A motivation is included for the physical causes of IQ imbalances and for the implications of the approach presented in this paper on designing and implementing wireless transceivers.