Polarization-independent all-optical demultiplexing of 160-Gb/s optical time-division-multiplexed data based on cross-phase-modulation-induced wavelength shifting in highly nonlinear fiber (HNLF) has been experimentally demonstrated with a maximum power penalty of 0.8 dB due to signal polarization variations. The method uses a simple and easy-to-implement single-path polarization-diversity scheme by placing a short piece of polarization-maintaining fiber before the HNLF.