The IEEE 802.15.4 standard specifies the physical and medium access control layers designed for low-rate wireless personal area networks (LR-WTAN) with a focus on enabling the wireless sensor networks. Its operational frequency band includes the 2.4GHz industrial, scientific and medical (ISM) band which is also used by other IEEE 802 wireless standards. This paper analyzes the performance of IEEE 802.15.4 in a coexistence environment with IEEE 802.11b in fading channels. The threshold used to obtain the outage probability is computed based on the mean packet error probability (PEP) which satisfies the performance requirement of IEEE 802.15.4. Numerical results show that the interference from IEEE 802.11b depends primarily on the frequency offset as well as on the receive signal power.