This paper investigates differentiated services in wireless packet networks using a fully distributed approach that supports service differentiation, radio monitoring and admission control. Service differentiation is based on the IEEE 802.11 Distributed Coordination Function (DCF) originally designed to support best-effort data services. We extend the Distributed Coordination Function to provide service differentiation for delay sensitive and best-effort traffic. Two distributed estimation algorithms are proposed and analyzed. A Virtual MAC (VMAC) algorithm passively monitors the radio channel and estimates locally achievable service levels. The Virtual MAC estimates key MAC level statistics related to service quality such as delay, delay variation, packet collision and packet loss. We show the efficiency of the Virtual MAC algorithm and consider significantly overlapping cells and highly bursty traffic mixes. A Virtual Source (VS) algorithm utilizes the Virtual MAC to estimate application level service quality. The Virtual Source allows application parameters to be tuned in response to dynamic channel conditions based on “virtual delay curves”. We demonstrate through simulation that when these distributed virtual algorithms are applied to the admission control of the radio channel then a globally stable state can be maintained without the need for complex centralized radio resource management. Finally, we discuss a distributed service level management scheme that builds on the proposed algorithms to offer continuous service with handoff.