We study the role of spin correlations in nonlinear absorption due to optical transitions from a deep impurity level to states above a Fermi sea. We demonstrate that the Hubbard repulsion between two electrons occupying the impurity state leads to a logarithmic divergence of the third-order nonlinear optical susceptibility χ(3) at the absorption threshold. This divergence is a manifestation of the Kondo physics in the nonlinear optical response of Fermi sea systems. Remarkably, the light-induced Kondo temperature, which governs the shape of the Kondoabsorption spectrum, can be tuned by varying the intensity and frequency of the pump optical field. We also show that, for off-resonant pump excitation, the pump-probe spectrum exhibits a narrow peak below the linear absorption onset. © 2001 Plenum Publishing Corporation.