The advantages of the model organism Drosophila melanogaster, including low genetic redundancy, functional simplicity, and the ability to conduct large-scale genetic screens, have been essential for understanding the molecular nature of circadian (∼24 hr) rhythms, and continue to be valuable in discovering novel regulators of circadian rhythms and sleep. In this review, we discuss the current understanding of these interrelated biological processes in Drosophila and the wider implications of this research. Clock genes period and timeless were first discovered in large-scale Drosophila genetic screens developed in the 1970s. Feedback of period and timeless on their own transcription forms the core of the molecular clock, and accurately timed expression, localization, post-transcriptional modification, and function of these genes is thought to be critical for maintaining the circadian cycle. Regulators, including several phosphatases and kinases, act on different steps of this feedback loop to ensure strong and accurately timed rhythms. Approximately 150 neurons in the fly brain that contain the core components of the molecular clock act together to translate this intracellular cycling into rhythmic behavior. We discuss how different groups of clock neurons serve different functions in allowing clocks to entrain to environmental cues, driving behavioral outputs at different times of day, and allowing flexible behavioral responses in different environmental conditions. The neuropeptide PDF provides an important signal thought to synchronize clock neurons, although the details of how PDF accomplishes this function are still being explored. Secreted signals from clock neurons also influence rhythms in other tissues. SLEEP is, in part, regulated by the circadian clock, which ensures appropriate timing of sleep, but the amount and quality of sleep are also determined by other mechanisms that ensure a homeostatic balance between sleep and wake. Flies have been useful for identifying a large set of genes, molecules, and neuroanatomic loci important for regulating sleep amount. Conserved aspects of sleep regulation in flies and mammals include wake-promoting roles for catecholamine neurotransmitters and involvement of hypothalamus-like regions, although other neuroanatomic regions implicated in sleep in flies have less clear parallels. Sleep is also subject to regulation by factors such as food availability, stress, and social environment. We are beginning to understand how the identified molecules and neurons interact with each other, and with the environment, to regulate sleep. Drosophila researchers can also take advantage of increasing mechanistic understanding of other behaviors, such as learning and memory, courtship, and aggression, to understand how sleep loss impacts these behaviors. Flies thus remain a valuable tool for both discovery of novel molecules and deep mechanistic understanding of sleep and circadian rhythms.