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Splitting sensory information into parallel pathways is a common strategy in sensory systems. Yet, how circuits in these parallel pathways are composed to maintain or even enhance the encoding of specific stimulus features is poorly understood. Here, we have investigated the parallel pathways formed by mitral and tufted cells of the olfactory system in mice and characterized the emergence of feature selectivity in these cell types via distinct lateral inhibitory circuits. We find differences in activity-dependent lateral inhibition between mitral and tufted cells that likely reflect newly described differences in the activation of deep and superficial granule cells. Simulations show that these circuit-level differences allow mitral and tufted cells to best discriminate odors in separate concentration ranges, indicating that segregating information about different ranges of stimulus intensity may be an important function of these parallel sensory pathways. DOI: http://dx.doi.org/10.7554/eLife.16039.001, eLife digest The brain often processes different features of sensory information in separate pathways. For example, when seeing an object, information about colour and movement are processed by separate types of neurons in the eye. These neurons in turn relay information to different sets of brain areas, all of which are active at the same time. Such parallel processing was originally not thought to apply to information about smell. This was because in mammals, the two types of neurons in the brain area that processes smell seemed to play the same role. However, more recent work suggests that there are in fact differences in the responses of these two neuron types (called mitral cells and tufted cells) to odors, suggesting that the brain might use parallel processing for information about smells too. Information travels along neurons in the form of electrical signals, and this activity is often seen in the form of a series of “spikes”. In a process called lateral inhibition, the activity of one neuron can feed back and inhibit the activity of its neighbors. This is important for enhancing contrast; in terms of the sense of smell, lateral inhibition is thought to help distinguish between similar odors. A technique called optogenetics allows the activity of particular neurons in an animal’s brain to be controlled by shining light onto them. Geramita et al. have now used this technique in mice to investigate whether there are differences in how lateral inhibition works in mitral cells and tufted cells. This revealed that lateral inhibition affects mitral cells only when they are spiking at intermediate firing rates, whereas tufted cells are only affected by lateral inhibition when spiking at low firing rates. Using computer simulations, Geramita et al. show that these different responses mean that mitral cells are best at distinguishing similar smells when they are present at high concentrations, while tufted cells are best at distinguishing similar smells that are present at low concentrations. These differences also mean that, by working together, mitral and tufted cells can distinguish between smells much better than either type of neuron on its own. These results demonstrate that, as with the other senses, the brain processes information about smell using parallel pathways. Future work is now needed to see what effect switching off the activity of either mitral or tufted cells will have on an animal’s behavior. DOI: http://dx.doi.org/10.7554/eLife.16039.002