Nonlinear Mach–Zehnder interferometer (NMZI) created with photonic crystal waveguides (PCW) and with Kerr-type nonlinearity has been investigated in this paper. The NMZI has been simulated using two-dimensional finite difference time domain (2D-FDTD) method. Input verses output (I/O) characteristics have been obtained for different lengths of the nonlinear arm, nonlinear coefficients of the nonlinear arm, wavelengths of the input beam, sizes of defect rods and NMZI offset. The results obtained are compared with earlier published results of NMZI created with conventional step index waveguides (SIW). It is shown that all useful features of light switching offered by SIW-based NMZIs are also possible with PCW-based NMZIs of extremely small dimensions. Moreover, PCW-based NMZIs offer additional useful feature not available with SIW-based NMZIs.