Drosophila ether-à-go-go (eag) is the founding member of a large family of voltage-gated K+ channels, the KCNH family, which includes Kv10, 11 and 12, (Ganetzky et al. 1999). Concurrent binding of calcium/calmodulin (Ca2+/CaM) to N- and C-terminal sites inhibits mammalian EAG1 channels at sub-micromolar Ca2+ concentrations (Schonherr et al. 2000), likely by causing pore constriction (Whicher and MacKinnon 2016). Although the Drosophila EAG channel was believed to be Ca2+-insensitive (Schonherr et al. 2000), both the N- and C-terminal sites are conserved. Here we show that Drosophila EAG is inhibited by high Ca2+ concentrations that are only present at plasma membrane Ca2+ channel microdomains. To test the role of this regulation in vivo, we engineered mutations that block CaM-binding to the major C-terminal site of the endogenous eag locus, disrupting Ca2+-dependent inhibition. eag CaMBD mutants have reduced evoked release from larval motor neuron presynaptic terminals and show decreased Ca2+ influx in stimulated adult projection neuron presynaptic terminals, consistent with an increase in K+ conductance. These results are predicted by a conductance-based multi-compartment model of the presynaptic terminal in which some fraction of EAG is localized to the Ca2+ channel microdomains that control neurotransmitter release. The reduction of release in the larval neuromuscular junction drives a compensatory increase in motor neuron somatic excitability. This misregulation of synaptic and somatic excitability has consequences for systems-level processes and leads to defects in associative memory formation in adults.