I compute the leading color-octet contributions to the process [Formula presented] within the nonrelativistic QCD (NRQCD) factorization formalism. In the color-singlet model, [Formula presented] can only be produced when the photon interacts through its structure function, while the color-octet mechanism allows for production of [Formula presented] via direct photon-gluon fusion. Resolved photon processes can be distinguished easily from direct photon processes by examining the fraction of the incident photon energy carried away by the [Formula presented] in the event. Therefore, this process provides a conclusive test of the color-octet mechanism. [Formula presented] production is particularly sensitive to the NRQCD matrix element which figures prominently in the fragmentation production of [Formula presented] at large [Formula presented] in hadron colliders. I also examine the predictions of the color evaporation model (CEM) of quarkonium production and find that this process can easily discriminate between the NRQCD factorization formalism and the CEM. © 1997 The American Physical Society.