Background Detecting objects is an important task when moving through a natural environment. Flies, for example, may land on salient objects or may avoid collisions with them. The neuronal ensemble of Figure Detection cells (FD-cells) in the visual system of the fly is likely to be involved in controlling these behaviours, as these cells are more sensitive to objects than to extended background structures. Until now the computations in the presynaptic neuronal network of FD-cells and, in particular, the functional significance of the experimentally established distributed dendritic processing of excitatory and inhibitory inputs is not understood. Methodology/Principal Findings We use model simulations to analyse the neuronal computations responsible for the preference of FD-cells for small objects. We employed a new modelling approach which allowed us to account for the spatial spread of electrical signals in the dendrites while avoiding detailed compartmental modelling. The models are based on available physiological and anatomical data. Three models were tested each implementing an inhibitory neural circuit, but differing by the spatial arrangement of the inhibitory interaction. Parameter optimisation with an evolutionary algorithm revealed that only distributed dendritic processing satisfies the constraints arising from electrophysiological experiments. In contrast to a direct dendro-dendritic inhibition of the FD-cell (Direct Distributed Inhibition model), an inhibition of its presynaptic retinotopic elements (Indirect Distributed Inhibition model) requires smaller changes in input resistance in the inhibited neurons during visual stimulation. Conclusions/Significance Distributed dendritic inhibition of retinotopic elements as implemented in our Indirect Distributed Inhibition model is the most plausible wiring scheme for the neuronal circuit of FD-cells. This microcircuit is computationally similar to lateral inhibition between the retinotopic elements. Hence, distributed inhibition might be an alternative explanation of perceptual phenomena currently explained by lateral inhibition networks.