In humans, KCNQ2/3 channels form an M-current that regulates neuronal excitability, with mutations in these channels causing benign neonatal familial convulsions. The M-current is important in mechanisms of neural plasticity underlying associative memory and in the response to ethanol, with KCNQ controlling the release of dopamine after ethanol exposure. We show that dKCNQ is broadly expressed in the nervous system, with targeted reduction in neuronal KCNQ increasing neural excitability and KCNQ overexpression decreasing excitability and calcium signalling, consistent with KCNQ regulating the resting membrane potential and neural release as in mammalian neurons. We show that the single KCNQ channel in Drosophila (dKCNQ) has similar electrophysiological properties to neuronal KCNQ2/3, including conserved acute sensitivity to ethanol block, with the fly channel (IC(50) = 19.8 mM) being more sensitive than its mammalian ortholog (IC(50) = 42.1 mM). This suggests that the role of KCNQ in alcohol behaviour can be determined for the first time by using Drosophila. We present evidence that loss of KCNQ function in Drosophila increased sensitivity and tolerance to the sedative effects of ethanol. Acute activation of dopaminergic neurons by heat-activated TRP channel or KCNQ-RNAi expression produced ethanol hypersensitivity, suggesting that both act via a common mechanism involving membrane depolarisation and increased dopamine signalling leading to ethanol sedation.