Tumor-associated macrophages (TAM) form a major component of the tumor stroma. However, important concepts such as TAM heterogeneity and the nature of the monocytic TAM precursors remain speculative. Here, we show for the first time that mouse mammary tumors contained functionally distinct subsets of TAMs and provide markers for their identification. Furthermore, in search of the TAM progenitors, we show that the tumor-monocyte pool almost exclusively consisted of Ly6C(hi)CX(3)CR1(low) monocytes, which continuously seeded tumors and renewed all nonproliferating TAM subsets. Interestingly, gene and protein profiling indicated that distinct TAM populations differed at the molecular level and could be classified based on the classic (M1) versus alternative (M2) macrophage activation paradigm. Importantly, the more M2-like TAMs were enriched in hypoxic tumor areas, had a superior proangiogenic activity in vivo, and increased in numbers as tumors progressed. Finally, it was shown that the TAM subsets were poor antigen presenters, but could suppress T-cell activation, albeit by using different suppressive mechanisms. Together, our data help to unravel the complexities of the tumor-infiltrating myeloid cell compartment and provide a rationale for targeting specialized TAM subsets, thereby optimally "re-educating" the TAM compartment.