The nonlinear optical effects induced by a one-dimensional (1D) line defect, made of Kerr material, in a 2D photonic crystal are studied. Comprehensive ab initio numerical simulations based on the finite-difference time-domain method show efficient third-harmonic generation in a photonic crystal waveguide consisting of the 1D defect line. The relationship between the third harmonic generation process and the nonlinear modal properties of the waveguide is discussed. We investigate optical limiting in such a device, that is, control of the transmitted power as a function of the Kerr-induced variation of the refractive index. Power dependent spectral changes in such a device and its use as a frequency selector are also examined.