Nonlinear optical propagation in cholesteric liquid crystals (CLC) with a spatially periodic helical molecular structure is studied experimentally and modeled numerically. This periodic structure can be seen as a Bragg grating with a propagation stopband for circularly polarized light. The CLC nonlinearity can be strengthened by adding absorption dye, thus reducing the nonlinear intensity threshold and the necessary propagation length. As the input power increases, a blue shift of the stopband is induced by the self-defocusing nonlinearity, leading to a substantial enhancement of the transmission and spreading of the beam. With further increase of the input power, the self-defocusing nonlinearity saturates, and the beam propagates as in the linear-diffraction regime. A system of nonlinear couple-mode equations is used to describe the propagation of the beam. Numerical results agree well with the experiment findings, suggesting that modulation of intensity and spatial profile of the beam can be achieved simultaneously under low input intensities in a compact CLC-based micro-device.