Recently, wireless sensor networks (WSNs) have been widely recognized as a promising technology for enhancing various aspects of smart grid and realizing the vision of next-generation electric power system in a cost-effective and efficient manner. However, recent field tests show that wireless links in smart grid environments have higher packet error rates and variable link capacity because of dynamic topology changes, obstructions, electromagnetic interference, equipment noise, multipath effects, and fading. To overcome these communication challenges, in this paper, we propose a data capacity-aware channel assignment (DCA) and fish bone routing (FBR) algorithm for WSN-based smart grid applications. The proposed DCA framework deals with the channel scarcities by dynamically switching between different spectrum bands and employs a network for organizing WSN into a highly stable connected hierarchy. In addition, the proposed FBR mechanism provides robust loop free data paths and avoids high transmission cost, excessive end-to-end delay and restricts unnecessary multi-hop data transmission from the source to destination in the network. Thus, it significantly reduces the probability of data packet loss and preserves stable link qualities among sensor nodes for load balancing and prolonging the lifetime of wireless sensor networks in harsh smart grid environments. Comparative performance evaluations show that our proposed schemes outperform the existing communication architectures in terms of data packet delivery, communication delay and energy consumption.