The dephasing of excitons and the formation of biexcitons in self-organized CdSe/ZnSe islands grown by molecular-beam epitaxy is investigated using spectrally resolved four-wave mixing. A distribution of exciton-exciton scattering efficiencies and dephasing times in the range of 0.5-10 ps are observed. This indicates the presence of differently localized exciton states at comparable transition energies. Polarization-dependent measurements identify the formation of biexcitons with a biexciton binding energy of more than four times the bulk value. With decreasing exciton energy, the binding energy slightly increases from 21.5 to 23 meV, while its broadening decreases from 5.5 to 3 meV. This is attributed to a strong three-dimensional confinement with improving shape uniformity for decreasing exciton energy. [S0163-1829(99)04739-6].