Many neurons release classical transmitters together with neuropeptide co-transmitters whose functions are incompletely understood. Here we define the relationship between two transmitters in the olfactory system of C. elegans, showing that a neuropeptide-to-neuropeptide feedback loop alters sensory dynamics in primary olfactory neurons. The AWC olfactory neuron is glutamatergic and also expresses the peptide NLP-1. Worms with nlp-1 mutations show increased AWC-dependent behaviors, suggesting that NLP-1 limits the normal response. The receptor for NLP-1 is the G protein-coupled receptor NPR-11, which acts in postsynaptic AIA interneurons. Feedback from AIA interneurons modulates odor-evoked calcium dynamics in AWC olfactory neurons and requires INS-1, a neuropeptide released from AIA. The neuropeptide feedback loop dampens behavioral responses to odors on short and long timescales. Our results point to neuronal dynamics as a site of behavioral regulation and reveal the ability of neuropeptide feedback to remodel sensory networks on multiple timescales.