Learning and memory has been studied extensively in Drosophila using behavioral, molecular, and genetic approaches. These studies have identified the mushroom body as essential for the formation and retrieval of olfactory memories. We investigated odor responses of the principal neurons of the mushroom body, the Kenyon cells (KCs), in Drosophila using whole cell recordings in vivo. KC responses to odors were highly selective and, thus sparse, compared with those of their direct inputs, the antennal lobe projection neurons (PNs). We examined the mechanisms that might underlie this transformation and identified at least three contributing factors: excitatory synaptic potentials (from PNs) decay rapidly, curtailing temporal integration, PN convergence onto individual KCs is low ( approximately 10 PNs per KC on average), and KC firing thresholds are high. Sparse activity is thought to be useful in structures involved in memory in part because sparseness tends to reduce representation overlaps. By comparing activity patterns evoked by the same odors across olfactory receptor neurons and across KCs, we show that representations of different odors do indeed become less correlated as they progress through the olfactory system.