We explored the transformations accompanying the transmission of odor information from the first-order processing area, the antennal lobe, to the mushroom body, a higher-order integration center in the insect brain. Using Ca2+ imaging, we recorded activity in the dendrites of the projection neurons that connect the antennal lobe with the mushroom body. Next, we recorded the presynaptic terminals of these projection neurons. Finally, we characterized their postsynaptic partners, the intrinsic neurons of the mushroom body, the clawed Kenyon cells. We found fundamental differences in odor coding between the antennal lobe and the mushroom body. Odors evoked combinatorial activity patterns at all three processing stages, but the spatial patterns became progressively sparser along this path. Projection neuron dendrites and boutons showed similar response profiles, but the boutons were more narrowly tuned to odors. The transmission from projection neuron boutons to Kenyon cells was accompanied by a further sparsening of the population code. Activated Kenyon cells were highly odor specific. Furthermore, the onset of Kenyon cell responses to projection neurons occurred within the first 200 ms and complex temporal patterns were transformed into brief phasic responses. Thus two types of transformations occurred within the MB: sparsening of a combinatorial code, mediated by pre- and postsynaptic processing within the mushroom body microcircuits, and temporal sharpening of postsynaptic Kenyon cell responses, probably involving a broader loop of inhibitory recurrent neurons.