We propose a novel reduced-state maximum-likelihood sequence detection (MLSD) structure using the Viterbi algorithm based on the second-order Volterra kernel modeling nonlinear distortion due to square law detection of multipath channels commonly occurring in chromatic dispersion (CD) or polarization mode dispersion (PMD) in optical communication systems. While all existing MLSD methods for square-law detection receivers are based on direct computation of branch metrics, the proposed algorithm provides an efficient and structured way to implement reduced-state MLSD with almost the same complexity of a MLSD for linear channels. As a result, the proposed algorithm reduces the number of parameters to be estimated and the complexity of computation.