A new optical stream cipher system based on a threshold generator used as a random key bit stream generator is presented. To implement the threshold generator optically, we use conventional twisted nematic type spatial light modulators (SLMs). This proposed system is based on the shadow casting technique for the AND operation between taps and register stages. It is also based on the proposed polarization multiplication by rotation and shift (PMRS) method for modulo-2 addition. The proposed PMRS method uses the property of light polarization on a liquid crystal device (LCD) and can be implemented optically using one LCD and some mirrors. One of the major advantages of the proposed system is that the programmable tapping points can be realized easily by updating the pixel value represented on LCD. We present some simulation results that verify this proposed method. © 1999 Society of Photo-Optical Instrumentation Engineers.