Transparent cobalt-doped magnesium aluminate spinel (Co:MgAl2O4) ceramics with a submicrometer grain size were prepared by spark plasma sintering. For the first time, the nonlinear absorption of Co:MgAl2O4 transparent ceramics was experimentally demonstrated. Both ground state absorption (σGSA) and excited state absorption (σESA) were estimated using the solid-state slow saturable absorber model based on absorption saturation measurements performed at 1.535 μm. σGSA and σESA for 0.03 at.% Co:MgAl2O4 were found to be 4.1 × 10−19 cm2 and 4.0 × 10−20 cm2, respectively. In the case of 0.06 at.% Co:MgAl2O4 ceramics, σGSA = 2.6 × 10−19 cm2 and σESA= 5.3 × 10−20 cm2 were determined.