We report the observation of two photon absorption which is strongly dependent on the applied electric field and the optical polarization. At 1.55 &mgr;m wavelength, the two‐photon absorption coefficient of the GaAs/AlGaAs multiquantum well (MQW) waveguides for transverse‐magnetic light is about seven times lower than for transverse‐electric polarized light and changes by a factor of approximately 4 for a change in applied direct‐current electric field of ∼140 kV/cm. Ultrafast nonlinear refraction causing phase changes of over &pgr; radians without appreciable excess loss is observed. These measurements demonstrate that GaAs/AlGaAs MQW waveguides could be successfully used for subpicosecond all‐optical switching near half‐band gap, at wavelengths corresponding to the 1.55 &mgr;m optical communications band.