After entering tissues, monocytes differentiate into cells that share functional features with either macrophages or dendritic cells (DCs). How monocyte fate is directed toward monocyte-derived macrophages (mo-Macs) or monocyte-derived DCs (mo-DCs) and which transcription factors control these differentiation pathways remains unknown. Using an in vitro culture model yielding human mo-DCs and mo-Macs closely resembling those found in vivo in ascites, we show that IRF4 and MAFB were critical regulators of monocyte differentiation into mo-DCs and mo-Macs, respectively. Activation of the aryl hydrocarbon receptor (AHR) promoted mo-DC differentiation through the induction of BLIMP-1, while impairing differentiation into mo-Macs. AhR deficiency also impaired the in vivo differentiation of mouse mo-DCs. Finally, AHR activation correlated with mo-DC infiltration in leprosy lesions. These results establish that mo-DCs and mo-Macs are controlled by distinct transcription factors and show that AHR acts as a molecular switch for monocyte fate specification in response to micro-environmental factors. Display omitted •IRF4 and MAFB are essential for human mo-DC and mo-Mac differentiation, respectively•AHR activation promotes mo-DC and inhibits mo-Mac differentiation through BLIMP-1•AhR is involved in the in vivo differentiation of mo-DCs in the mouse How monocytes differentiate into dendritic cells versus macrophages is poorly understood. Goudot et al. show that IRF4 and MAFB are essential for dendritic cell or macrophage differentiation, respectively, and identify aryl hydrocarbon receptor as a major regulator of monocyte fate.