AbstractIn this article, a multifunctional optical processing unit for differential eight phase‐shift‐keying (D8PSK) and differential quadrature phase‐shift‐keying (DQPSK) based on four‐wave mixing (FWM) effects in semiconductor optical amplifier (SOA) is proposed. All‐optical wavelength conversion, D8PSK‐to‐DQPSK format conversion and signal encryption of 10‐Gbaud DQPSK and D8PSK optical signals are achieved simultaneously by simulation. Detailed theoretical analysis and simulation results are conducted to verify the feasibility of the scheme. The Q factor of the electrical signals and the bit error rate recovered from wavelength and format converted components are approximated to be around 6, and 10−9, which indicates the feasibility of the scheme. For the encrypted signal, the FWM effect of another SOA is utilized to decrypt the encrypted signal, and the encryption function of 10‐Gbaud DQPSK and D8PSK optical signals is also verified.