We employ a series of state-of-the-art computational techniques to study the effect of inserting one or more Xe atoms in HC2H and HC4H, on the linear and nonlinear optical (L&NLO) properties of the resulting compounds. It has been found that the inserted Xe has a great effect on the L&NLO properties of the organoxenon derivatives. We analyze the bonding in HXeC2H, and the change of the electronic structure, which is induced by inserting Xe, in order to rationalize the observed extraordinary L&NLO properties. The derivatives, which are of interest in this work, have been synthesized in a Xe matrix. Thus the effect of the local field (LF), due to the Xe environment, on the properties of HXeC2H, has also been computed. It has been found that the LF effect on some properties is significant. The calculations have been performed by employing a hierarchy of basis sets and the techniques MP2 and CCSD(T) for taking into account correlation. For the interpretation of the results we have employed the complete active space valence bond and CASSCF/CASPT2 methods.