<p>Artificial intelligence (AI) is transforming modern life, yet the growing scale of AI applications places mounting demands on computational resources, raising sustainability concerns. Photonic integrated circuits (PICs) offer a promising alternative, enabling massive parallelism, low latency, and reduced electrical overhead, particularly excelling in high-throughput linear operations. However, passive and fully optical nonlinear activation functions with equally superb performance remain rare, posing a critical bottleneck in realizing all-optical neural networks in PICs. Here, we demonstrate a compact and integrated all-optical nonlinear activation method, experimentally realized through strong second-order optical nonlinearities in periodically poled lithium niobate (PPLN) nanophotonic waveguides, achieving ~80% absolute conversion efficiency. This activation exhibits a sigmoid-like, wavelength-selective response with femtosecond-scale dynamics and light-speed processing, operating passively without external control and auxiliary signals. We validate its feasibility for neural inference by cascading the PPLN-driven activations with a linear silicon PIC, demonstrating all-optical nonlinear neuron expressivity. Moreover, combining the measured nonlinearity with linear operations calculated by the PIC, we show that PPLN-activated multi-layer optical neural networks can achieve performance on par with digital implementations in real-world tasks, including airfoil regression and medical image classification. These results pave the way toward scalable, high-speed, and fully integrated all-optical neural networks for next-generation photonic AI hardware.</p>