Depression is a highly heterogeneous syndrome that bears only modest correlations with its biological substrates, motivating a renewed interest in rethinking our approach to diagnosing depression for research purposes and new efforts to discover subtypes of depression anchored in biology. Here, we review the major causes of diagnostic heterogeneity in depression, with consideration of both clinical symptoms and behaviors (symptomatology and trajectory of depressive episodes) and biology (genetics and sexually dimorphic factors). Next, we discuss the promise of using data-driven strategies to discover novel subtypes of depression based on functional neuroimaging measures, including dimensional, categorical, and hybrid approaches to parsing diagnostic heterogeneity and understanding its biological basis. The merits of using resting-state functional magnetic resonance imaging functional connectivity techniques for subtyping are considered along with a set of technical challenges and potential solutions. We conclude by identifying promising future directions for defining neurobiologically informed depression subtypes and leveraging them in the future for predicting treatment outcomes and informing clinical decision making.