Dopaminergic neurons innervate extensive areas of the brain and release dopamine (DA) onto a wide range of target neurons. However, DA release is also precisely regulated. In Drosophila melanogaster brain explant preparations, DA is released specifically onto α3/α'3 compartments of mushroom body (MB) neurons that have been coincidentally activated by cholinergic and glutamatergic inputs. The mechanism for this precise release has been unclear. Here we found that coincidentally activated MB neurons generate carbon monoxide (CO), which functions as a retrograde signal evoking local DA release from presynaptic terminals. CO production depends on activity of heme oxygenase in postsynaptic MB neurons, and CO-evoked DA release requires Ca²⁺ efflux through ryanodine receptors in DA terminals. CO is only produced in MB areas receiving coincident activation, and removal of CO using scavengers blocks DA release. We propose that DA neurons use two distinct modes of transmission to produce global and local DA signaling.SIGNIFICANCE STATEMENT Dopamine (DA) is needed for various higher brain functions, including memory formation. However, DA neurons form extensive synaptic connections, while memory formation requires highly specific and localized DA release. Here we identify a mechanism through which DA release from presynaptic terminals is controlled by postsynaptic activity. Postsynaptic neurons activated by cholinergic and glutamatergic inputs generate carbon monoxide, which acts as a retrograde messenger inducing presynaptic DA release. Released DA is required for memory-associated plasticity. Our work identifies a novel mechanism that restricts DA release to the specific postsynaptic sites that require DA during memory formation.