Nonlinear optical properties of CdSe clusters have been investigated using time dependent density functional theory. Finite and negative values of static and frequency dependent first order hyperpolarizability have been observed in case of CdSe and Cd3 Se3 while the same is absent in Cd2 Se2 and Cd4 Se4. At specific frequencies, sudden increase in the frequency dependent components of first order hyperpolarizability tensor (second harmonic generation) has been attributed to the near resonance of the input energy. Three components of second order hyperpolarizability tensor have been calculated by combining analytical and finite difference techniques. The results indicate that these clusters have a high degree of nonlinear optical properties. © 2006 The American Physical Society.