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We report the observation of optical switching in a CdTe etalon at room temperature using 11 ns pulses at 1.064 μm radiation. We have also observed optical limiting and pulse compression. The switching was attributed to the nonlinear change in the index of refraction induced by two‐photon absorption. The thermal effect was found to have a negligible contribution to the nonlinearity. The transmission of the etalon was studied as a function of its initial detuning and the input intensity. The switching times were found to be in the range of 1.5–3.7 ns. A theoretical model was developed in the plane‐wave approximation assuming both nonlinear absorption and refraction and was found to be in good agreement with the experimental results. © 1996 American Institute of Physics.