The official currency in Iran is Rials. But since local Iranians use the word "Tomans" in daily payments, sometimes it can be confusing.

 The common bill these days is 10000 Rial bill but the locals use Tomans which is deducting one zero; a 10000 bill is called 1000 Tomans bill. (Hezaar Tomani in Farsi)

So the 10000 Rials equals 1000 Tomans approximately 1 $  (USD).

Needless to say that official dollar exchange rate is about 1040 which fluctuates a bit. The fluctuation is more in free market.

The common type of bills are 500 - 1000 - 2000 - 5000 (both available in bills and coins) 10000 - 20000 - 50000 - 100000 bills only
Travellers cheque are mostly in 500000 bills.
Some 100 and 250 are still found here and there (used to function as dime and quarters)

To give you a better idea: an average hamburger costs 2000 Tomans = 20000 Rials = 2 $.

A bottle of Mineral water costs about 500 Tomans = 5000 Rials = 50 cents

Then the exchange rate makes it quite easy to pay for food or services when traveling in Iran. Just remember not to mix them up. In bank and official exchanges only Rials which is acceptable.

Some pictures can be helpful to identify the bills and coins currently used in Iran.

2000 Rials (200 tomans)

5000 Rials (500 tomans)