We disclose an optical transport system configured to transport data using a PDM-modulation format, in which each of two orthogonal polarizations is independently amplitude-modulated, and the relative phase between the carrier waves of the two polarizations may also be modulated. This modulation format enables the optical receiver to perform direct optical detection using a Stokes-vector detector to fully recover the encoded data. In an example embodiment, the corresponding signal processing at the optical receiver may include: determining a Stokes-space rotation matrix corresponding to the polarization-state rotation encountered by the PDM signal in the optical transport link; applying the determined Stokes-space rotation matrix to the Stokes sub-vector measured by the Stokes-vector detector to estimate the Stokes sub-vector of the PDM signal at the originating optical transmitter; converting the estimated Stokes sub-vector into the corresponding Jones vector; and recovering the data by decoding the polarization components of the Jones vector.