An optical encoding and decoding system which performs code-division multiple access (CDMA) communication in the incoherent, or direct detection, optical domain using bipolar +1/-1 codes. The present invention uses code modulation and detection principles that permit all-optical implementation of the bipolar, +1/-1, code and correlation detection that have been developed for the radio frequency (RF) systems. This is possible in spite of the non-negative, or unipolar, +1/0, nature of the incoherent optical system that only detects and processes the signal intensity. The unipolar optical system of the present invention is equivalent to the bipolar RF system in that the correlation properties of the bipolar codes is completely preserved. The optical CDMA system can be realized both in time or frequency domain encoding with all-optical components.