We demonstrate the use of saturated excitation in confocal fluorescence microscopy to improve the spatial resolution. In the proposed technique, we modulate the excitation intensity temporally and detect the harmonic modulation of the fluorescence signal which is caused by the saturated excitation in the center of the laser focus. Theoretical and experimental investigations show that the demodulated fluorescence signal is nonlinearly proportional to the excitation intensity and contributes to improve the spatial resolution in three dimensions beyond the diffraction limit of light.