Prior experience of a stimulus can inhibit subsequent acquisition or expression of a learned association of that stimulus. However, the neuronal manifestations of this learning effect, named latent inhibition (LI), are poorly understood. Here, we show that prior odor exposure can produce context-dependent LI of later appetitive olfactory memory performance in Drosophila. Odor pre-exposure forms a short-lived aversive memory whose lone expression lacks context-dependence. Acquisition of odor pre-exposure memory requires aversively reinforcing dopaminergic neurons that innervate two mushroom body compartments-one group of which exhibits increasing activity with successive odor experience. Odor-specific responses of the corresponding mushroom body output neurons are suppressed, and their output is necessary for expression of both pre-exposure memory and LI of appetitive memory. Therefore, odor pre-exposure attaches negative valence to the odor itself, and LI of appetitive memory results from a temporary and context-dependent retrieval deficit imposed by competition with the parallel short-lived aversive memory.