Contrast enhancement mediated by lateral inhibition within the nervous system enhances the detection of salient features of visual and auditory stimuli, such as spatial and temporal edges. However, it remains unclear how mechanisms for temporal contrast enhancement in the olfactory system can enhance the detection of odor plume edges during navigation. To address this question, we delivered to Drosophila melanogaster flies pulses of high odor intensity that induce sustained peripheral responses in olfactory sensory neurons (OSNs). We use optical electrophysiology to directly measure electrical responses in presynaptic terminals and demonstrate that sustained peripheral responses are temporally sharpened by the combined activity of two types of inhibitory GABA receptors to generate contrast-enhanced voltage responses in central OSN axon terminals. Furthermore, we show how these GABA receptors modulate the time course of innate behavioral responses after odor pulse termination, demonstrating an important role for temporal contrast enhancement in odor-guided navigation.