Neuroligins are postsynaptic neural cell adhesion molecules that mediate synaptic maturation and function in vertebrates and invertebrates, but their mechanisms of action and regulation are not well understood. At the Drosophila larval neuromuscular junction (NMJ), previous analysis demonstrated a requirement for Drosophila neuroligin 1 (dnlg1) in synaptic growth and maturation. The goal of the present study was to better understand the effects and mechanisms of loss-of-function and overexpression of dnlg1 on synapse size and function, and to identify signaling pathways that control dnlg1 expression. Consistent with reduced synapse size, evoked excitatory junctional currents (EJCs) were diminished in dnlg1 mutants but displayed normal Ca(2+) sensitivity and short-term plasticity. However, postsynaptic function was also perturbed, in that glutamate receptor staining and the distribution of amplitudes of miniature excitatory junctional currents (mEJCs) were abnormal in mutants. All the above phenotypes were rescued by a genomic transgene. Overexpression of dnlg1 in muscle resulted in synaptic overgrowth, but reduced the amplitudes of EJCs and mEJCs. Overgrowth and reduced EJC amplitude required Drosophila neurexin 1 (dnrx1) function, suggesting that increased DNlg1/DNrx1 signaling attenuates synaptic transmission and regulates growth through a retrograde mechanism. In contrast, reduced mEJC amplitude was independent of dnrx1. Synaptic overgrowth, triggered by neuronal hyperactivity, absence of the E3 ubiquitin ligase highwire, and increased phosphoinositide-3-kinase (PI3K) signaling in motor neurons reduced synaptic DNlg1 levels. Likewise, postsynaptic attenuation of PI3K, which increases synaptic strength, was associated with reduced DNlg1 levels. These observations suggest that activity and PI3K signaling pathways modulate growth and synaptic transmission through dnlg1-dependent mechanisms.