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To explore how neural circuits represent novel versus familiar inputs, we presented mice with repeated sets of images with novel images sparsely substituted. Using two-photon calcium imaging to record from layer 2/3 neurons in the mouse primary visual cortex, we found that novel images evoked excess activity in the majority of neurons. This novelty response rapidly emerged, arising with a time constant of 2.6 ± 0.9 s. When a new image set was repeatedly presented, a majority of neurons had similarly elevated activity for the first few presentations, which decayed to steady state with a time constant of 1.4 ± 0.4 s. When we increased the number of images in the set, the novelty response’s amplitude decreased, defining a capacity to store ∼15 familiar images under our conditions. These results could be explained quantitatively using an adaptive subunit model in which presynaptic neurons have individual tuning and gain control. This result shows that local neural circuits can create different representations for novel versus familiar inputs using generic, widely available mechanisms.