Circular RNAs (circRNAs) are widely expressed in eukaryotes. However, only a subset has been functionally characterized. We identify and validate a collection of circRNAs in Drosophila, and show that depletion of the brain-enriched circRNA Edis (circ_Ect4) causes hyperactivation of antibacterial innate immunity both in cultured cells and in vivo. Notably, Edis depleted flies display heightened resistance to bacterial infection and enhanced pathogen clearance. Conversely, ectopic Edis expression blocks innate immunity signaling. In addition, inactivation of Edis in vivo leads to impaired locomotor activity and shortened lifespan. Remarkably, these phenotypes can be recapitulated with neuron-specific depletion of Edis, accompanied by defective neurodevelopment. Furthermore, inactivation of Relish suppresses the innate immunity hyperactivation phenotype in the fly brain. Moreover, we provide evidence that Edis encodes a functional protein that associates with and compromises the processing and activation of the immune transcription factor Relish. Importantly, restoring Edis expression or ectopic expression of Edis-encoded protein suppresses both innate immunity and neurodevelopment phenotypes elicited by Edis depletion. Thus, our study establishes Edis as a key regulator of neurodevelopment and innate immunity.