A theoretical treatment is given of the process in which the two photons produced simultaneously in the parametric frequency splitting of light are allowed to interfere. It is shown that, while there is no interference in the usual sense involving quantities that are of the second order in the field, fourth-order interference effects are present. These may be revealed by measuring the joint probability of detecting two photons at two points x,x in the interference plane with photoelectric detectors as a function of the separation x-x. The probability exhibits a cosine modulation with x-x, with visibility that can approach 100%, even though the integration time in the experiment may greatly exceed the reciprocal bandwidth of the photons. The interference effect has a nonclassical origin and implies a violation of local realism in the highly correlated two-photon state. © 1986 The American Physical Society.