In the Drosophila brain, the neuropeptide PIGMENT DISPERSING FACTOR (PDF) is expressed in the small and large Lateral ventral neurons (LNvs) and regulates circadian locomotor behavior. Interestingly, PDF immunoreactivity at the dorsal terminals changes across the day as synaptic contacts do as a result of a remarkable remodeling of sLNv projections. Despite the relevance of this phenomenon to circuit plasticity and behavior, the underlying mechanisms remain poorly understood. In this work we provide evidence that PDF along with matrix metalloproteinases (Mmp1 and 2) are key in the control of circadian structural remodeling. Adult-specific downregulation of PDF levels per se hampers circadian axonal remodeling, as it does altering Mmp1 or Mmp2 levels within PDF neurons post-developmentally. However, only Mmp1 affects PDF immunoreactivity at the dorsal terminals and exerts a clear effect on overt behavior. In vitro analysis demonstrated that PDF is hydrolyzed by Mmp1, thereby suggesting that Mmp1 could directly terminate its biological activity. These data demonstrate that Mmp1 modulates PDF processing, which leads to daily structural remodeling and circadian behavior.