A laser diode control circuit maintains a desired average output power of the laser diode (10) by detecting (18) the optical output, amplifying (24) the detected output, and controlling a bias current (14) of the laser diode accordingly. A pilot tone (20) is combined with the detected output (18) and amplified therewith, and the amplified (24) level of the tone is detected (22) and used to control (26) a modulation current (16) for the laser diode. In one described arrangement the laser diode (10) is controlled to have a high extinction ratio with the bias current at the knee (42) of the diode's characteristic curve, and in another arrangement a lower extinction ratio is provided with the bias current above the knee (42).