Tumor-associated macrophages (TAM) are a universal feature of cancers but variably influence outcomes and treatment responses. In this study, we used a photoconvertible mouse to distinguish newly entering, monocyte-derived TAMs (mdTAM) that were enriched at the tumor core from resident-like TAMs that localized with fibroblasts at the tumor-normal interface. The mdTAM pool was highly dynamic and continually replenished by circulating monocytes. Upon tumor entry, these monocytes differentiated down two divergent fate trajectories distinguished by the expression of MHC class II. MHC-II+ mdTAMs were functionally distinct from MHC-II- mdTAMs, demonstrating increased capacity for endocytosis and Fc-gamma receptor-mediated phagocytosis, as well as proinflammatory cytokine production. Both mdTAM subsets showed reduced expression of inflammatory transcripts and increased expression of PD-L1 with increasing tumor dwell time. Treatment with anti-PD-L1 skewed mdTAM differentiation toward the MHC-II+ fate and attenuated the anti-inflammatory effects of the tumor environment. Anti-PD-L1 enhanced mdTAM-CD4+ T cell interactions, establishing an IFNγ-CXCL9/10-dependent positive feedback loop. Altogether, these data resolve distinct temporal, spatial, and functional properties of TAMs and provide evidence of subset-specific effects of PD-L1 blockade.