A method and apparatus for multiplexing multiple Ethernet-based data streams in an optical network reduce the number of optical transceivers required by the optical network. Multiple data streams are multiplexed into a combined data stream, transmitted from a node in the optical network as the combined data stream, and demultiplexed at the receiving node. Data streams are multiplexed and demultiplexed at the bit level, and packets from each data stream are routed based on a VLAN tag that is contained in the header of each packet. By transmitting the information contained in multiple data streams as a single multiplexed data stream, the number of optical transceivers required for the optical network may be reduced by more than half. An optical supervisory channel may also be bundled with one of the data streams to eliminate the need for a dedicated transceiver for the optical supervisory channel.