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This paper uses M-ary chip symbols to increase the spectral efficiency of optical code division multiple access (OCDMA) even though, when compared to its binary counterpart, M-ary OCDMA can have significantly increased multi-user interference (MUI). The presented numerical channel capacity results show that appropriate non-uniform M-ary signaling allows the reduction of MUI and the achievement of improved OCDMA spectral efficiency. Using insights from the OCDMA capacity results, we design a coded M-ary OCDMA transmission scheme that can achieve very high spectral efficiencies. The proposed time/wavelength OCDMA scheme relies on intensity modulation, appropriate non-uniform signaling, M-ary trellis-coded modulation and error-correcting codes. The corresponding receiver is based on direct detection of optical signals, soft-decision single-user demodulation and error-control decoding. The presented simulation results illustrate that the designed OCDMA scheme can support hundreds of active users at the target bit error rate of 10-9 and is robust to impairments encountered in optical transmission (shot noise, thermal noise). The achieved spectral efficiency of up to 1.34 bits per OCDMA chip is significantly better than the best binary OCDMA result reported in the literature.