Animals learn when punishment or reward is predicted by neutral stimuli like tones or odors. Synaptic plasticity maps the predictor to the appropriate behavioral drive, forming a memory trace. But if the predictor is presented as one of two options, the optimal response is uncertain and depends on the alternative. Can a single memory trace evoke different behaviors, depending on stimulus context? We used optogenetics in Drosophila to form an odor-punishment association restricted to a single set of synapses, ie. a single memory trace. These flies showed flexible behavioral responses to a given odor stimulus. Depending on the choice, flies either generalized the association from the learned odor (A) to an unreinforced, similar odor (A’), or discriminated between them. We measured neuronal activity in the fly memory circuit, the mushroom body. The mushroom body output neuron (MBON) downstream of the memory trace had indistinguishable responses to single pulses of odors A and A’ - generalizing across them. But if odors were presented as transitions from A to A’, mimicking the fly crossing an odor boundary, MBON responses to A’ were dramatically altered, allowing discrimination. Receiving odors in a specific sequence caused the MB circuit to alter the output of the memory trace. We tested this behaviorally. When odors were presented singly, flies responded to the punished odor, A and A’ indistinguishably. Only when A transitioned into A’, fly behavior switched and they were attracted to A’. An association assigns valence or meaning to a stimulus. But valence is subjective and ever-changing, depending on ongoing events in the environment. Our study reveals a novel way for animals to modulate how a test stimulus evokes behavior, based on ongoing stimulus dynamics. This is an important step to move beyond a plasticity-centric view of memory recall.