The present invention provides a method and system for dynamically changing upper bound on size of data packets. In one embodiment, a transmitting device determines a need to change existing negotiated maximum size for an active connection when size of data packets for an application is switched, a new application is mapped to the active connection or Maximum Transmission Unit (MTU) of broadband wireless network is changed. Then, the transmitting device sends a request message indicating a new negotiated maximum size for changing the existing negotiated maximum size to the receiving device. The receiving device sends a response message confirming change to the new negotiated maximum size to the transmitting device. Accordingly, the transmitting device and the receiving device uses the new negotiated maximum size for building data packets and decoding the received data packets respectively based on a predefined parameter (e.g., sequence number/action time) indicated in the request/response message.