We present a computational model for target discrimination based on intracellular recordings from neurons in the fly visual system. Determining how insects detect and track small moving features, often against cluttered moving backgrounds, is an intriguing challenge, both from a physiological and a computational perspective. Previous research has characterized higher-order neurons within the fly brain, known as 'small target motion detectors' (STMD), that respond robustly to moving features, even when the velocity of the target is matched to the background (i.e. with no relative motion cues). We recorded from intermediate-order neurons in the fly visual system that are well suited as a component along the target detection pathway. This full-wave rectifying, transient cell (RTC) reveals independent adaptation to luminance changes of opposite signs (suggesting separate ON and OFF channels) and fast adaptive temporal mechanisms, similar to other cell types previously described. From this physiological data we have created a numerical model for target discrimination. This model includes nonlinear filtering based on the fly optics, the photoreceptors, the 1(st) order interneurons (Large Monopolar Cells), and the newly derived parameters for the RTC. We show that our RTC-based target detection model is well matched to properties described for the STMDs, such as contrast sensitivity, height tuning and velocity tuning. The model output shows that the spatiotemporal profile of small targets is sufficiently rare within natural scene imagery to allow our highly nonlinear 'matched filter' to successfully detect most targets from the background. Importantly, this model can explain this type of feature discrimination without the need for relative motion cues.