In adulthood, sleep-wake rhythms are one of the most prominent behaviors under circadian control. However, during early life, sleep is spread across the 24-hour day. The mechanism through which sleep rhythms emerge, and consequent advantage conferred to a juvenile animal, is unknown. In the second-instar Drosophila larvae (L2), like in human infants, sleep is not under circadian control. We identify the precise developmental time point when the clock begins to regulate sleep in Drosophila, leading to emergence of sleep rhythms in early third-instars (L3). At this stage, a cellular connection forms between DN1a clock neurons and arousal-promoting Dh44 neurons, bringing arousal under clock control to drive emergence of circadian sleep. Last, we demonstrate that L3 but not L2 larvae exhibit long-term memory (LTM) of aversive cues and that this LTM depends upon deep sleep generated once sleep rhythms begin. We propose that the developmental emergence of circadian sleep enables more complex cognitive processes, including the onset of enduring memories.