A novel optical header extraction scheme based on optical differential phase shift keying--DPSK--decoding is examined analytically and experimentally. The header is applied in front of the payload, on the phase of a pulsed optical level introduced for the duration of the header. The proposed scheme offers maximized header extraction efficiency, required by the electronics to identify the header bits and control the switch. At the same time, the payload is transmitted at maximum extinction ratio. Analytical results prove the enhanced performance of the decoding scheme with respect to the extinction ratio and in comparison to other DPSK based schemes. Moreover, the utilised scheme is cost efficient and easily upgradeable to any bit rates and adds minimum complexity at the transmitter and detector parts of the system. Finally, the implementation of the developed technique in a real optical packet switch is demonstrated, where header extraction, reading, processing and switch control using field programmable gate array--FPGA--technology is successfully demonstrated.