Both microglia, the resident myeloid cells of the CNS parenchyma, and infiltrating blood‐derived macrophages participate in inflammatory responses in the CNS. Macrophages can be polarized into M1 and M2 phenotypes, which have been linked to functional properties including production of inflammation association molecules and phagocytic activity. We compare phenotypic and functional properties of microglia derived from the adult human CNS with macrophages derived from peripheral blood monocytes in response to M1 and M2 polarizing conditions. Under M1 conditions, microglia and macrophages upregulate expression of CCR7 and CD80. M2 treatment of microglia‐induced expression of CD209 but not additional markers CD23, CD163, and CD206 expressed by M2 macrophages. M1‐polarizing conditions induced production of IL‐12p40 by both microglia and macrophages; microglia produced higher levels of IL‐10 under M1 conditions than did macrophages. Under M2 conditions, microglia ± LPS produced comparable levels of IL‐10 under M1 conditions whereas IL‐10 was induced by LPS in M2 macrophages. Myelin phagocytosis was greater in microglia than macrophages under all conditions; for both cell types, activity was higher for M2 cells. Our findings delineate distinctive properties of microglia compared with exogenous myeloid cells in response to signals derived from an inflammatory environment in the CNS. © 2012 Wiley Periodicals, Inc.