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Animals approach stimuli that predict a pleasant outcome. After the paired presentation of an odour and a reward, Drosophila melanogaster can develop a conditioned approach towards that odour. Despite recent advances in understanding the neural circuits for associative memory and appetitive motivation, the cellular mechanisms for reward processing in the fly brain are unknown. Here we show that a group of dopamine neurons in the protocerebral anterior medial (PAM) cluster signals sugar reward by transient activation and inactivation of target neurons in intact behaving flies. These dopamine neurons are selectively required for the reinforcing property of, but not a reflexive response to, the sugar stimulus. In vivo calcium imaging revealed that these neurons are activated by sugar ingestion and the activation is increased on starvation. The output sites of the PAM neurons are mainly localized to the medial lobes of the mushroom bodies (MBs), where appetitive olfactory associative memory is formed. We therefore propose that the PAM cluster neurons endow a positive predictive value to the odour in the MBs. Dopamine in insects is known to mediate aversive reinforcement signals. Our results highlight the cellular specificity underlying the various roles of dopamine and the importance of spatially segregated local circuits within the MBs.