A regenerator for restoring the originally encoded optical phase of a differential-phase-shift-keyed signal. In an embodiment, the regenerator simultaneously provides limiting amplification and reduces amplitude noise based on a phase-sensitive optical amplifier that combines a weak signal field of a degraded input data with a strong pump field supplied by a local oscillator in a nonlinear interferometer. The two fields interact through degenerate four-wave mixing, and optical energy is transferred from the pump to the signal and vice versa. The phase sensitive nature of the optical gain leads to amplification of a specific phase component of the signal, determined by the input pump-signal phase difference and the incident signal phase is restored to two distinct states, separated by 180.degree. according to the original encoding. Simultaneously, gain saturation of the pump wave by the signal wave results in limiting amplification of the signal wave for removing signal amplitude noise.