Two-dimensional (2D) materials have garnered significant attention in the on-chip photonic and optoelectronic applications due to strong light-matter interactions and compatibility with the current planar optoelectronic technology in an atomic thickness. Recent investigation unveiled that 2D materials with prominent interlayer coupling and quantum confinement have shown strong and tunable nonlinear optical (NLO) absorption (saturable absorption, reverse saturable absorption, two-photon absorption, etc.), which lays a solid foundation for optical circuits, all-optical control as well as ultrafast and Q-switch lasers. In this review, we have outlined the basic theory of third-order NLO absorption for the 2D materials. On this basis, we also summarized the main strategies to modulate and enhance NLO absorption of 2D materials, such as defect engineering, surface termination, crystal phase variation, layer-number control, and heterostructure construction. Finally, the future challenges and outlooks toward engineering NLO properties and further extending and realizing practical photonic and optoelectronic applications based on 2D materials are discussed.