The processing of odor-evoked activity in the olfactory bulb (OB) of zebrafish was studied by extracellular single unit recordings from the input and output neurons, i.e., olfactory receptor neurons (ORNs) and mitral cells (MCs), respectively. A panel of 16 natural amino acid odors was used as stimuli. Responses of MCs, but not ORNs, changed profoundly during the first few hundred milliseconds after response onset. In MCs, but not ORNs, the total evoked excitatory activity in the population was initially odor-dependent but subsequently converged to a common level. Hence, the overall population activity is regulated by network interactions in the OB. The tuning widths of both ORN and MC response profiles were similar and, on average, stable over time. However, when analyzed for individual neurons, MC response profiles could sharpen (excitatory response to fewer odors) or broaden (excitatory response to more odors), whereas ORN response profiles remained nearly unchanged. Several observations indicate that dynamic inhibition plays an important role in this remodeling. Finally, the reliability of odor identification based on MC population activity patterns improved over time, whereas odor identification based on ORN activity patterns was most reliable early in the odor response. These results demonstrate that several properties of MC, but not ORN, activity change during the initial phase of the odor response with important consequences for odor-encoding activity patterns. Furthermore, our data indicate that inhibitory interactions in the OB are important in dynamically shaping the activity of OB output neurons.