Polydiacetylene microcrystals in a water suspension or a polymer matrix were prepared by a simple precipitation procedure in order to obtain a thin samples with good optical quality maintaining the characteristics of crystalline materials. The nonlinear refraction, n(2), and nonlinear absorption, beta, around the exciton peak were measured by z-scan method using a tunable picosecond laser. The signs of the nz are positive/negative at wavelengths shorter/longer than the exciton peak and strong saturable absorption, which beta is negative, are observed around the peak The largest n(2) was obtained to be +0.024 cm(2)/GW (Re chi((3))=+1.4x10(-9) esu) at 640nm for a gelatin composite film containing 24wt% of polydiacetylene microcrystals.