Sleep is homeostatically regulated, such that sleep drive reflects the duration of prior wakefulness. However, despite the discovery of genes important for sleep, a coherent molecular model for sleep homeostasis has yet to emerge. To better understand the function and regulation of sleep, we employed a reverse-genetics approach in Drosophila. An insertion in the BTB domain protein CG32810/insomniac (inc) exhibited one of the strongest baseline sleep phenotypes thus far observed, a ~10 h sleep reduction. Importantly, this is coupled to a reduced homeostatic response to sleep deprivation, consistent with a disrupted sleep homeostat. Knockdown of the INC-interacting protein, the E3 ubiquitin ligase Cul3, results in reduced sleep duration, consolidation, and homeostasis, suggesting an important role for protein turnover in mediating INC effects. Interestingly, inc and Cul3 expression in post-mitotic neurons during development contributes to their adult sleep functions. Similar to flies with increased dopaminergic signaling, loss of inc and Cul3 result in hyper-arousability to a mechanical stimulus in adult flies. Furthermore, the inc sleep duration phenotype can be rescued by pharmacological inhibition of tyrosine hydroxylase, the rate-limiting enzyme for dopamine biosynthesis. Taken together, these results establish inc and Cul3 as important new players in setting the sleep homeostat and a dopaminergic arousal pathway in Drosophila.