We report on Kerr nonlinearity and dispersive optical bistability of a Fabry-Perot optical resonator due to the displacement of ultracold atoms trapped within. In the driven resonator, such collective motion is induced by optical forces acting upon up to $10^5$ $^{87}$Rb atoms prepared in the lowest band of a one-dimensional intracavity optical lattice. The longevity of atomic motional coherence allows for strongly nonlinear optics at extremely low cavity photon numbers, as demonstrated by the observation of both branches of optical bistability at photon numbers below unity.
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