Passive optical network broadcasts extensive data to subscribers. However, they are vulnerable to various security attacks. The main objective of our work is to assess the information security aspects at the physical layer of next-generation passive optical network stage 2 (NG-PON2). Our paper focuses on the security issues faced by NG-PON2, and we propose an encryption method using the all-optical exclusive-OR gate. The proposed simulation architecture of symmetric 80-Gbps NG-PON2 is based on array waveguide grating. Further, we verified the inherent security of the NG-PON2 system through an eavesdropping attempt at an optical network unit (ONU). For this, we used a key exchange mechanism using the Diffie–Hellman algorithm for sharing individual unique keys between every ONU and the optical line terminal. The simulation results show that the presented technique provides secure broadband services in the access network. The transmitted data are encrypted to ensure confidentiality on the multipoint fiber connection. We have evaluated the transmission performance of the proposed set up and achieved acceptable results in terms of Q-factor (7.12 dB) and bit error rate of (5.26  ×  ^{10  −  13}). The bits in the optical domain, which are sent to the first ONU, are also compared with the received optical bits at the receiving ONU. The correct reception of the bits at the intended ONU and the inability of malicious ONUs to eavesdrop the data of other ONUs validates the scheme.