State estimation plays a critical role in self-detection and control of the smart grid. Data integrity attacks (also known as false data injection attacks) have shown significant potential in undermining the state estimation of power systems, and corresponding countermeasures have drawn increased scholarly interest. Nonetheless, leveraging optimal phasor measurement unit (PMU) placement to defend against these attacks, while simultaneously ensuring the system observability, has yet to be addressed without incurring significant overhead. In this paper, we enhance the least-effort attack model, which computes the minimum number of sensors that must be compromised to manipulate a given number of states, and develop an effective greedy algorithm for optimal PMU placement to defend against data integrity attacks. Regarding the least-effort attack model, we prove the existence of smallest set of sensors to compromise and propose a feasible reduced row echelon form (RRE)-based method to efficiently compute the optimal attack vector. Based on the IEEE standard systems, we validate the efficiency of the RRE algorithm, in terms of a low computation complexity. Regarding the defense strategy, we propose an effective PMU-based greedy algorithm, which cannot only defend against data integrity attacks, but also ensure the system observability with low overhead. The experimental results obtained based on various IEEE standard systems show the effectiveness of the proposed defense scheme against data integrity attacks. © 2005-2012 IEEE.