This Small Business Innovation Research (SBIR) Phase I project will demonstrate a breakthrough, enabling technology for monitoring of optical signal transmission. Optical networks must be continuously supervised to ensure reliable data delivery. Advanced networks are evolving towards denser wavelength spacing and optical nodes. This trend obsoletes current optical signal quality monitoring techniques. An integrated all-optical method that not only monitors but also performs on-line diagnosis of optical faults in advanced networks will be demonstrated. Phase I will show the feasibility of a new measurement principle for monitoring optical noise components at the same wavelength as the optical signal itself. This capability is designed or a real network environment which includes the presence of polarization mode dispersion (PMD), a phenomena which has frustrated other approaches to in-channel noise detection. The project will include development of mathematical models of optical noise and PMD behavior, assembly of a network testbed, and experimental data. Results will meet commercially accepted standards of sensitivity and repeatability. This monitoring technology enables network equipment to develop and deploy advanced networks. Advanced dense wavelength division multiplexing (DWDM) systems, which employ higher channel density and optical routing, are becoming available. These systems are very attractive to carriers because they offer cost savings of greater than 50% on both initial capital expenditure and on-going operating expense. This represents an enormous cost savings for telecommunications carriers and ultimately all data communications consumers