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Although associative learning has been localized to specific brain areas in many animals, identifying the underlying synaptic processes in vivo has been difficult. Here, we provide the first demonstration of long-term synaptic plasticity at the output site of the Drosophila mushroom body. Pairing an odor with activation of specific dopamine neurons induces both learning and odor-specific synaptic depression. The plasticity induction strictly depends on the temporal order of the two stimuli, replicating the logical requirement for associative learning. Furthermore, we reveal that dopamine action is confined to and distinct across different anatomical compartments of the mushroom body lobes. Finally, we find that overlap between sparse representations of different odors defines both stimulus specificity of the plasticity and generalizability of associative memories across odors. Thus, the plasticity we find here not only manifests important features of associative learning but also provides general insights into how a sparse sensory code is read out.