A new approach to incoherent-to-coherent optical conversion based on a real-time five-wave-mixing technique in photoanisotropic organic film is presented. A uniform grating is written holographically in the sample and then erased locally by an incident white-light image. Subsequent coherent diffraction of the spatially modulated grating imposes the incoherent image upon the reading laser beam, permitting subsequent coherent optical processing. A theoretical analysis of the holographic recording and erasing mechanism in these photoanisotropic materials is presented, and the saturation is shown to be responsible for the grating intermodulation that produces the incoherent-to-coherent conversion. Experimental results of white-light images converted to inverted coherent images in real time are presented, and the resolution is shown to exceed 28 line pairs/mm.