The invention discloses a cascade sum-frequency and difference-frequency all-optical wavelength converter and a conversion method. After second pump light of a second laser device of the converter is transmitted through a polarization controller, a linearly polarized light conversion device and a first optical coupler, the second pump light and signal light access a second optical coupler, an erbium-doped fiberamplifier and an optical circulator together and reach a PPLN (periodically poled lithium niobate) ridgewaveguide, forward light beams are reflected by a Faraday 90-degree rotating reflector, backward light beams are transmitted into the ridgewaveguide, and converted idler-frequency light is outputted from the optical circulator. The conversion method includes adjusting the pump light into a TM (transverse magnetic) mode by the polarization controller, and then converting the pump light into linearly polarized light by the online polarized light conversion device; decomposing the linearly polarized light into light in a TE (transverse electric) mode and light in a TM mode in the ridgewaveguide; enabling the pump light in the TM mode and the signal light in a TM mode to perform cascade sum-frequency and difference-frequency reaction and generating the converted idler-frequency light in a TM mode; reflecting other forward light and converting a mode of the other forward light by the aid of the Faraday reflector; returning the other forward light to the ridge waveguide. The polarization direction of the linearly polarized light is parallel to the cross section of the PPLN ridge waveguide, and an angle theta is formed between the linearly polarized light and an X-axis. An amplitude ratio of the light in the TE mode to the light in the TM mode is tg theta. The cascade sum-frequency and difference-frequency all-optical wavelength converter and the conversion method have the advantage that wavelength conversion independent from a polarization state of the signal light can be implemented by the aid of the cascade sum-frequency and difference-frequency all-optical wavelength converter and the conversion method.