We have studied the nonlinear susceptibility in dispersive polaritonic band-gap (DPBG) materials in the presence of five-level impurity atoms. Initially, the atom is prepared in a coherent superposition of two levels |b〉 and |c〉. The levels |b〉 and |c〉 are coupled to the upper level |a〉 with a coherent laser field. The nonlinear susceptibility has been calculated corresponding to transitions |a〉 |c〉 and |a〉 |b〉 using the equation of motion for the density matrix. The atomic system is interacting with the polariton reservoir. The effect of atom-polariton reservoir coupling on the imaginary part of the nonlinear susceptibility has been studied when the resonance energy lies in lower band of the polariton spectrum. It is found that by shifting the resonance energy away from the band edge, the system goes to the probe gain state. It is also found that by changing the intensity of the coherent laser field, the system switches from gain to loss state and vice-versa. (© 2005 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim)