Microcellular radio direct-sequence code division multiple access (DC-CDMA) system using optical link to connect their base stations to a central station is a solution of cost-effective and efficient spectrum reuse to meet the growing demand for mobile communications. In addition to the inherent multiuser interference (MUI) of CDMA signals, the system capacity is significantly reduced by a nonlinear distortion (NLD) due to the nonlinearity of optical link. In this paper, a two-stage cancellation technique is introduced into the system to cancel both the MUI and the NLD. It is performed at the receiver of the central station where the random ingredients of all user signals are estimated, and the MUI and the NLD are rebuilt and removed from the received signal. The validity of the cancellation technique is theoretically analyzed and shown by the numerical results. The analytical method and its results are also applicable to other general nonlinear CDMA.