We report the observation of an intensity-dependent refractive-index nonlinearity in CdS due to a resonance state where an excitonic molecule is created by induced absorption of light. The refractive index

as a function of the incident laser photon energy

is measured directly by light refraction in thin crystal prisms. A renormalized dielectric function describes the measured

spectra well. This strong refractive-index nonlinearity is well suited to produce an optical bistability and to further strengthen the evidence of CdS to be an important material for laser-induced dynamic gratings.