Human mononuclear phagocytes isolated from venous blood or sterile peritoneal exudate were cultured in an in vitro system known to induce differentiation of monocytes to macrophages. Morphological and functional studies were performed at different stages of in vitro differentiation, in order to compare the two macrophage populations. Freshly-isolated human peritoneal macrophages (PEC), which are presumed to represent monocytes which have differentiated in vivo in the peritoneal exudate for 1--2 days, showed several signs of increased effector cell function, as compared to the relatively immature blood monocytes. Cell adherence after phagocytosis, ability to degrade ingested 125I-labelled Candida albicans, and ability to suppress DNA-synthesis in a target cell line of human origin, were all found to be greater in the peritoneal cells in early culture. During in vitro differentiation in this system, both PEC and monocytes developed remarkable morphological and functional changes. Cell size and granule content increased considerably. Cell function, measured as phagocytic, digestive and cytostatic ability, increased for both macrophage populations. The differences between the two cell populations in early culture suggest that the functional and morphological changes induced by in vivo differentiation in peritoneal exudate involve changes of the same kind as those induced by in vitro differentiation in our system. The lodging of mononuclear phagocytes in sterile peritoneal exudate does not seem to impair the capacity for further differentiation to any great extent.