We propose a novel optical effect that involves switching the nonlinear refractive index of colloids and solutions by applying an external field. The third-order nonlinear optical properties of the colloidal aluminum-doped zinc oxide nanoparticles were studied using the z-scan technique by employing a polarized continuous-wave laser beam. To produce the anisotropic effect in the nanocolloids, an external electric field was applied. The nonlinear refraction index switches from minus values to positive ones as the magnitude of the electric field increases. Enhancement of linear and nonlinear absorption coefficients due to the amplitude of the electric field confirms potential application of the colloidal nanoparticles for optical switches. This phenomenon was described theoretically using the re-orientation effect and birefringence of the media. This effect could be interesting for application in nonlinear optical devices and sensors.