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Abstract Crawling insects, when starved, tend to have fewer head wavings and travel in straighter tracks in search of food. We used theDrosophila melanogasterlarva to investigate whether this flexibility in the insect’s navigation strategy arises during early olfactory processing and, if so, how. We demonstrate a critical role for Keystone-LN, an inhibitory local neuron in the antennal lobe, in implementing head-sweep behavior. Keystone-LN responds to odor stimuli, and its inhibitory output is required for a larva to successfully navigate attractive and aversive odor gradients. We show that insulin signaling in Keystone-LN likely mediates the starvation-dependent changes in head-sweep magnitude, shaping the larva’s odor-guided movement. Our findings demonstrate how flexibility in an insect’s navigation strategy can arise from context-dependent modulation of inhibitory neurons in an early sensory processing center. They raise new questions about modulating a circuit’s inhibitory output to implement changes in a goal-directed movement.