Macrophages and dendritic cells derive from a hematopoietic stem cell and the existence of a common committed progenitor has been hypothesized. We have recently found in normal human marrow a subset of CD34(+) cells that constitutively expresses HLA-DR and low levels of CD86, a natural ligand for the T cell costimulation receptor CD28. This CD34(+) subset can elicit responses from allogeneic T cells. In this study, we show that CD34(+)/CD86(+) cells can also present tetanus toxoid antigen to memory CD4(+) T cells. CD86 is expressed at low levels in macrophages and high levels in dendritic cells. Therefore, we have tested the hypothesis that CD34(+)/CD86(+) cells are the common precursors of both macrophages and dendritic cells. CD34(+)/CD86(+) marrow cells cultured in granulocyte-macrophage colony-stimulating factor (GM-CSF)-generated macrophages. In contrast, CD34(+)/CD86(-) cells cultured in GM-CSF generated a predominant population of granulocytes. CD34(+)/CD86(+) cells cultured in GM-CSF plus tumor necrosis factor-alpha (TNF-alpha) generated almost exclusively CD1a+/CD83(+) dendritic cells. In contrast, CD34(+)/CD86(-) cells cultured in GM-CSF plus TNF-alpha generated a variety of cell types, including a small population of dendritic cells. In addition, CD34(+)/CD86(+) cells cultured in granulocyte colony-stimulating factor failed to generate CD15(+) granulocytes. Therefore, CD34(+)/CD86(+) cells are committed precursors of both macrophages and dendritic cells. The ontogeny of dendritic cells was recapitulated by stimulation of CD34(+)/CD86(-) cells with TNF-alpha that induced expression of CD86. Subsequent costimulation of CD86(+) cells with GM-CSF plus TNF-alpha lead to expression of CD83 and produced terminal dendritic cell differentiation. Thus, expression of CD86 on hematopoietic progenitor cells is regulated by TNF-alpha and denotes differentiation towards the macrophage or dendritic cell lineages.