CRYPTOCHROME (CRY) is the primary circadian photoreceptor in Drosophila. We show that CRY binding to TIMELESS (TIM) is light-dependent in flies and irreversibly commits TIM to proteasomal degradation. In contrast, CRY degradation is dependent on continuous light exposure, indicating that the CRY-TIM interaction is transient. A novel cry mutation (cry(m)) reveals that CRY's photolyase homology domain is sufficient for light detection and phototransduction, whereas the carboxyl-terminal domain regulates CRY stability, CRY-TIM interaction, and circadian photosensitivity. This contrasts with the function of Arabidopsis CRY domains and demonstrates that insect and plant cryptochromes use different mechanisms.