The origin and function of the different myeloid cell subsets that appear in the lung during pulmonary tuberculosis are unknown. Herein we show that adoptively transferred monocytes give rise to many of the macrophage and dendritic cell (DC) subsets that appear following aerosol infection with virulent Mycobacterium tuberculosis. Monocyte differentiation in infected peripheral tissue is surprisingly heterogeneous and results in the formation of five distinct myeloid subsets, including both classically activated macrophages, that produce inducible NO synthase via an IFN-gamma-dependent mechanism, and DC. In contrast, monocytes recruited to draining pulmonary lymph nodes are functionally different and acquire a mature DC phenotype. Thus, while monocytes are recruited to the lungs of uninfected mice, their differentiation and acquisition of myeloid effector functions are dramatically altered in the presence of inflammation and bacteria and are dependent on tissue localization. Therefore, our results support a model in which recruited monocytes are well poised to influence multiple aspects of host immunity to infections in the lungs. This report provides the first direct evidence for monocyte differentiation into both the macrophage and DC lineages in vivo following infection with a live human pathogen.