In this paper, performance of Multi-Layered STBC (MLSTBC) is investigated in the presence of Rayleigh fading for relay assisted Multiple-Input Multiple-Output (MIMO) system. Space Time Block Coding (STBC) is used for encoding the information at user's handset because the channel from handset to relay is bad-state channel and STBC is more suitable for bad-state channel to obtain low BER. On the other hand, MLSTBC is used to re-encode the data at relay. STBC provides diversity gain but does not provide multiplexing gain. On the other hand, MLSTBC provides both diversity and multiplexing gain. So we can install large number of antennas at relay by using MLSTBC to improve the capacity of second hop. The capacity of whole system also increases for using large number of antennas at relay with acceptable BER. Simulation and analytical results are presented to show the performance of the proposed system.