A phaselocked optical heterodyne receiver was constructed using a 1320 nm diode-pumped miniature Nd:YAG ring laser. Using that receiver and a transmitter based on another Nd:YAG laser, a 560 Mb/s PSK synchronous heterodyne transmission was demonstrated over 78 km of single-mode fiber. With an optical phaselocked loop natural frequency of 32 kHz and a damping factor of 1.46, the receiver sensitivity, measured at the output of the transmission link, was—48.7 dBm or 159 photons/bit. The corresponding sensitivity, measured on the surface of the p-i-n diode, was -51.8 dBm or 78 photons/bit. This result suggests that the receiver sensitivity would have been about 80 photons/bit if a balanced receiver, with 0.1 dB excess coupler loss, had been used. We investigated, for the first time, the impact of the finite intermediate frequency (IF) on heterodyne system performance and showed that an IF of at least twice the bit rate is needed for a negligibly small penalty. © 1990 IEEE