Cortical activity changes continuously during the course of the day. At a global scale, population activity varies between the 'synchronized' state during sleep and 'desynchronized' state during waking. However, whether local fluctuations in population synchrony during wakefulness modulate the accuracy of sensory encoding and behavioral performance is poorly understood. Here, we show that populations of cells in monkey visual cortex exhibit rapid fluctuations in synchrony ranging from desynchronized responses, indicative of high alertness, to highly synchronized responses. These fluctuations are local and control the trial variability in population coding accuracy and behavioral performance in a discrimination task. When local population activity is desynchronized, the correlated variability between neurons is reduced, and network and behavioral performance are enhanced. These findings demonstrate that the structure of variability in local cortical populations is not noise but rather controls how sensory information is optimally integrated with ongoing processes to guide network coding and behavior.