A spectral collocation multi-domain scheme is developed for the accurate and efficient time-domain solution of Maxwell's equations within multi-layered diffractive optical elements. Special attention is being paid to the modeling of out-of-plane waveguide couplers. Emphasis is given to the proper construction of high-order schemes with the ability to handle very general problems of considerable geometric and material complexity. Central questions regarding efficient absorbing boundary conditions and time-stepping issues are also addressed. The efficacy of the overall scheme for the time-domain modeling of electrically large, and computationally challenging, problems is illustrated by solving a number of plane as well as non-plane waveguide problems. (C) 1999 Academic Press.