In this paper, both nonlinear saturable absorption and two-photon absorption (TPA) of few-layer molybdenum diselenide (MoSe₂) were observed at 1.56 μm wavelength and further applied to mode-locked ultrafast fiber laser for the first time to our knowledge. Few-layer MoSe₂ nanosheets were prepared by liquid-phase exfoliation method and characterized by x ray diffractometer, Raman spectroscopy, and atomic force microscopy. The obtained few-layer MoSe₂ dispersion is further composited with a polymer material for convenient fabrication of MoSe₂ thin films. Then, we investigated the nonlinear optical (NLO) absorption property of the few-layer MoSe₂ film using a balanced twin-detector measurement technique. Both the saturable absorption and TPA effects of the few-layer MoSe₂ film were found by increasing the input optical intensity. The saturable absorption shows a modulation depth of 0.63% and a low nonsaturable loss of ～3.5%, corresponding to the relative modulation depth of 18%. The TPA effect occurred when the input optical intensity exceeds ～260 MW/cm2. Furthermore, we experimentally exploit the saturable absorption of few-layer MoSe₂ film to mode lock an all-fiber erbium-doped fiber laser. Stable soliton mode locking at 1558 nm center wavelength is achieved with pulse duration of 1.45 ps. It was also observed that the TPA process suppresses the mode-locking operation in the case of higher optical intensity. Our results indicate that layered MoSe₂, as another two-dimensional nanomaterial, can provide excellent NLO properties (e.g., saturable absorption and TPA) for potential applications in ultrashort pulse generation and optical limiting.