Wireless Sensor Network (WSN) is used in various applications. A main performance factor for WSN is the battery life that depends on energy consumption on the sensor. To reduce the energy consumption, an energy efficient transmission technique is required. Cluster Wireless Sensor Network (CWSN) groups the sensors that have the best channel condition and form a MIMO system. This leads to enhancing the transmission and hence reducing energy consumed by the sensor. In CWSN systems multiple signals are combined at the transmitter and transmitted by using multiple antennas according to channel condition. CWSN requires a good estimation of the Channel State Information (CSI) to implement a powerful and efficient system. Channel Estimation technique should be used to better form the CWSN and make use of the MIMO features. Adaptive Channel Estimation (ACE) is used to enhance the BER performance of the CWSN by utilizing the retransmission feature devised in this paper and feeding the CSI obtained to further enhance the clustering algorithm. We use Particle Swarm Optimization (PSO) algorithm to find the optimal cluster members according to a fitness function that derived from the channel condition. Too many calculations and operations are required in exhaustive search algorithms to form the optimal cluster arrangement. It shows that optimal cluster formation can be implemented fast and efficiently by using the PSO.