In the "Drosophila" olfactory system, sparse odor coding by the Kenyon cells of the mushroom body is thought to generate a large number of precisely addressable locations for the storage of odor-specific memories. Sparseness is controlled by a negative feedback circuit between Kenyon cells and GABAergic anterior paired lateral (APL) neurons. Systematic activation and blockade of each leg of this feedback circuit shows that Kenyon cells activate APL neurons and APL neurons inhibit Kenyon cells. Disrupting the Kenyon cell–APL feedback loop decreases the sparseness of Kenyon cell odor responses, increases inter-odor correlations, and prevents flies from learning to discriminate similar, but not dissimilar, odors. These results suggest that feedback inhibition suppresses Kenyon cell activity to maintain sparse, decorrelated odor coding and thus the odor-specificity of memories.