Molecular genetic analysis of the fruit fly Drosophila melanogaster has revolutionized our understanding of the transcription/translation loop mechanisms underlying the circadian molecular oscillator. More recently, Drosophila has been used to understand how different neuronal groups within the circadian pacemaker circuit interact to regulate the overall behavior of the fly in response to daily cyclic environmental cues as well as seasonal changes. Our present understanding of circadian timekeeping at the molecular and circuit level is discussed with a critical evaluation of the strengths and weaknesses of present models. Two models for circadian neural circuits are compared: one that posits that two anatomically distinct oscillators control the synchronization to the two major daily morning and evening transitions, versus a distributed network model that posits that many cell-autonomous oscillators are coordinated in a complex fashion and respond via plastic mechanisms to changes in environmental cues.