The exciton is observed in (In,Al)GaN laser diodes as resonance in the optical gain spectra and in the spectra of the carrier induced change of the refractive index. The observed instability of the exciton with respect to the free electron-hole plasma with increasing carrier densities is accompanied by a blueshift of the exciton resonance due to the quantum confined Stark shift. The experiments confirm central points of many-body simulations of InGaN/GaN quantum wells. The exciton becomes unstable near threshold and so lasing occurs from the electron-hole plasma. (C) 2004 American Institute of Physics.