Alveolar macrophages (AM) are the most abundant antigen-presenting cells in the lungs, and they play a critical role in regulating pulmonary immune responses to inhaled pathogens and to allergens. However, compared with macrophages in other body sites, AM have an unusual phenotype that, in many respects, resembles the phenotype of dendritic cells (DC). Therefore, to more fully define the unique nature of AM, we compared the phenotype and function of AM with the phenotype and function of resident peritoneal lavage-derived macrophages (PLM). We found striking phenotypic differences between AM and PLM, particularly with regard to CD11c expression, and we also observed that AM had a significantly better antigen-presenting capability than PLM. Therefore, we investigated the role of the local airway environment in generation of the unusual phenotype of AM. We carried out cell transfer experiments to compare macrophage differentiation in the airways with that in the peritoneal cavity. We observed significant upregulation of CD11c expression on bone marrow macrophages and peritoneal macrophages when they were adoptively transferred into the airways. In contrast, CD11c expression was not upregulated after cell transfer into the peritoneal cavity, whereas CD11b expression was significantly increased. In vitro, culture of bone marrow-adherent cells with surfactant protein D (SP-D) or granulocyte/macrophage colony-stimulating factor (GM-CSF) induced significant upregulation of CD11c expression, and in vivo GM-CSF concentrations were significantly higher in bronchoalveolar than in peritoneal lavage fluid. Finally, GM-CSF(-/-) mice failed to develop CD11c(+) AM, but CD11c(+) AM were present in SP-D(-/-) mice. However, macrophages from GM-CSF(-/-) bone marrow could upregulate CD11c expression when transferred to the airways of wild-type mice. These results suggest that the airway environment promotes development of macrophages with unique DC-like characteristics and that this unusual phenotype is determined, to a large degree, by locally high concentrations of GM-CSF and, possibly, SP-D.