Peripheral blood monocytes are a population of circulating mononuclear phagocytes that harbor potential to differentiate into macrophages and dendritic cells. As in humans, monocytes in the mouse comprise two phenotypically distinct subsets that are Gr1(high)CX(3)CR1(int) and Gr1(low)CX(3)CR1(high), respectively. The question remains whether these populations contribute differentially to the generation of peripheral mononuclear phagocytes. In this study, we track the fate of adoptively transferred, fractionated monocyte subsets in the lung of recipient mice. We show that under inflammatory and noninflammatory conditions, both monocyte subsets give rise to pulmonary dendritic cells. In contrast, under the conditions studied, only Gr1(low)CX(3)CR1(high) monocytes, but not Gr1(high)CX(3)CR1(int) cells, had the potential to differentiate into lung macrophages. However, Gr1(high)CX(3)CR1(int) monocytes could acquire this potential upon conversion into Gr1(low)CX(3)CR1(high) cells. Our results therefore indicate an intrinsic dichotomy in the differentiation potential of the two main blood monocyte subsets.