Human monocytes have been grouped into classical (CD14++CD16-), non-classical (CD14dimCD16++), and intermediate (CD14++CD16+) subsets. Documentation of normal function and variation in this complement of subtypes, particularly their differentiation potential to dendritic cells (DC) or macrophages, remains incomplete. We therefore phenotyped monocytes from peripheral blood of healthy subjects and performed functional studies on high-speed sorted subsets. Subset frequencies were found to be tightly controlled over time and across individuals. Subsets were distinct in their secretion of TNFα, IL-6, and IL-1β in response to TLR agonists, with classical monocytes being the most producers and non-classical monocytes the least. Monocytes, particularly those of the non-classical subtype, secreted interferon-α (IFN-α) in response to intracellular TLR3 stimulation. After incubation with IL-4 and GM-CSF, classical monocytes acquired monocyte-derived DC (mo-DC) markers and morphology and stimulated allogeneic T cell proliferation in MLR; intermediate and non-classical monocytes did not. After incubation with IL-3 and Flt3 ligand, no subset differentiated to plasmacytoid DC. After incubation with GM-CSF (M1 induction) or macrophage colony-stimulating factor (M-CSF) (M2 induction), all subsets acquired macrophage morphology, secreted macrophage-associated cytokines, and displayed enhanced phagocytosis. From these studies we conclude that classical monocytes are the principal source of mo-DCs, but all subsets can differentiate to macrophages. We also found that monocytes, in particular the non-classical subset, represent an alternate source of type I IFN secretion in response to virus-associated TLR agonists.