Device-to-Device (D2D) communication as an underlaying cellular network empowers direct communication between two users and helps in offloading network traffic. However, due to interference posed by the D2D transmitters to the primary cellular users, intelligent resource allocation techniques need to be incorporated for the betterment of the overall system. Overlay D2D communication eliminates the interference between cellular users and D2D users by dedicating resources for D2D users. With this approach, interference among D2D users can still pose a potential threat to the overall system performance. To handle this additional interference without significantly affecting the spectrum efficiency, smart assignment of wireless resources is necessary among D2D users. For the first time, we look into this problem and propose an efficient channel assignment scheme that mitigates the interference among D2D users. By meticulously assigning the channels with proper power control, the proposed channel assignment scheme is found to improve the spectrum reuse as well as the energy efficiency of the system. We compare our scheme with Full Reuse (FR) channel assignment scheme where every D2D pair fully shares the channel resources. Extensive simulations demonstrates that our scheme performs better than FR in terms of spectrum reuse, energy efficiency and overall system blocking. © 2015 IEEE.