Sensory systems must be able to extract features of environmental cues within the context of the different physiological states of the organism and often temper their activity in a state-dependent manner via the process of neuromodulation. We examined the effects of the neuromodulator serotonin on a well-characterized sensory circuit, the antennal lobe of Drosophila melanogaster, using two-photon microscopy and the genetically expressed calcium indicator, G-CaMP. Serotonin enhances sensitivity of the antennal lobe output projection neurons in an odor-specific manner. For odorants that sparsely activate the antennal lobe, serotonin enhances projection neuron responses and causes an offset of the projection neuron tuning curve, most likely by increasing projection neuron sensitivity. However, for an odorant that evokes a broad activation pattern, serotonin enhances projection neuron responses in some, but not all, glomeruli. Further, serotonin enhances the responses of inhibitory local interneurons, resulting in a reduction of neurotransmitter release from the olfactory sensory neurons via GABA(B) receptor-dependent presynaptic inhibition, which may be a mechanism underlying the odorant-specific modulation of projection neuron responses. Our data suggest that the complexity of serotonin modulation in the antennal lobe accommodates coding stability in a glomerular pattern and flexible projection neuron sensitivity under different physiological conditions.