A novel optical signal processing using an optically pumped vertical-cavity surface-emitting laser (VCSEL) with an external optical input is proposed. The mode transition between a fundamental and a high-order transverse mode is induced by an external optical injection. When we select a fundamental transverse mode through a single-mode fiber as an output signal, we are able to realize non-linear transfer functions, which may be useful for re-amplification and re-shaping in high speed photonic networks. The switching characteristic of a 1.55 μm optically pumped two-mode VCSEL has been simulated by using a two-mode rate equation, including the effects of spatial hole burning and spectral hole burning as gain saturation coefficients. Also, the detuning effect in the injection locking is investigated. When the wavelength of an input light with a fundamental mode is slightly longer than that of a VCSEL operating in a 1st-order transverse mode, the transverse mode of the VCSEL is switched to a fundamental mode at a critical input power level. This gives us an ideal 2R function with amplification and nonlinear transfer functions.