Increases in circulating CD14+/CD16+ monocytes have been associated with HIV dementia; trafficking of these cells into the CNS has been proposed to play an important role in the pathogenesis of HIV-induced neurological disorders. This model suggests that events outside the CNS leading to monocyte activation initiate the process leading to HIV dementia. To investigate the role of this activated monocyte subset in the pathogenesis of HIV dementia, we examined brain specimens from patients with HIV encephalopathy (HIVE), HIV without encephalopathy, and seronegative controls. An accumulation of perivascular macrophages was observed in HIVE. The majority of these cells identified in microglial nodules and in the perivascular infiltrate were CD14+/CD16+. P24 antigen colocalized with both CD14 and CD16 suggesting that the CD14+/CD16+ macrophage is a major reservoir of HIV-1 infection in CNS. Using CD45/LCA staining, the perivascular macrophage was distinguished from resident microglia. In addition to perivascular and nodular localizations, CD16 also stained ramified cells throughout the white matter. These cells were more ramified and abundant than cells positive for CD14 in white matter. Double staining for p24 and CD16 suggests that these cells were often infected with HIV-1. The prominent distribution of CD14+ cells in HIVE prompted our analysis of soluble CD14 levels in cerebrospinal fluid. Higher levels of soluble CD14 (sCD14) were observed in patients with moderate-to-severe HIV dementia, suggesting the utility of sCD14 as a surrogate marker. CD14+/CD16+ monocytes may play a role in other neurological disorders and sCD14 may be useful for evaluating these conditions.