Binary and multilevel optical polarization modulation (POLSK) is an innovative transmission technique, suitable for both coherent and direct detection. To prove its feasibility, we have built a flexible polarization modulator based on a specifically designed LiNbO/sub 3/ device. We show that it can generate any state of polarization and therefore it is suitable for transmission of any binary or multilevel POLSK constellation. Once electrically equalized, the modulator has a 4 GHz bandwidth. To test the modulator with actual digital modulation, we set up a coherent binary experiment at 800 Mbit/s, and attained a sensitivity 1.5 dB away from the noise limit of the receiver.