Formation of coherently strained CdS quantum islands, embedded in ZnS, was achieved by metalorganic vapor-phase epitaxy (MOVPE). A lateral island of size 15 nm and height 2.5 nm is found by transmission electron microscopy. The three-dimensional confinement of excitons in the islands is proven by localized and resolution-limited cathodoluminescence in the deep-blue to near-UV spectral range. Optical gain as high as 225 cm(-1) at 265 kW/cm(2) and up to 420 cm(-1) at 3 MW/cm(2) assigned to a state filling process is achieved at a photon energy of 3.49 cV.