We report degenerate four-wave mixing study of 50 A CdS particles embedded in a thin polymer film. The CdS band-gap is blue-shifted compared to the bulk value (quantum size effect). Photoluminescence spectra show that three particles contain intrinsic defects, most likely due to sulfur vacancies. Preliminary results show that both the four-wave mixing signal and the transmission saturate at moderate power (a few MC/cm**2). These results are qualitatively consistent with the three-level saturable absorber model.