How the brain perceives volatile chemicals in the environment to evoke the appropriate behaviour is a fundamental question in sensory neuroscience. The olfactory system of the fruit fly, Drosophila melanogaster, has emerged as a powerful model system to address this problem. Recent analysis of the molecular, neuroanatomical and physiological properties of the olfactory circuits that detect the sex and social aggregation pheromone cis-vaccenyl acetate now provides one of the most comprehensive outlines for the neural basis of odour perception. This review describes these latest advances, discusses what they reveal about where stimulus sensitivity and specificity is encoded in olfactory circuits, and considers future questions.