IEEE 802.11 is the most important standard for wireless local area networks (WLANs). In the IEEE 802.11 WLANs, distributed coordination function (DCF) is a fundamental medium access control (MAC) protocol, whose performance has been studied analytically in the literature. However, there is no research work that takes into account various incoming traffic load, network size, and the influence of transmission error at the same time. In this paper, a refined model is presented to evaluate the performance of DCF in a time-varying wireless channel. In this study, the wireless channel is modeled by a finite-state Markov (FSM) chain. In each channel state, the operation of the IEEE 802.11 DCF is modeled by an embedded Markov chain. Using these two Markov chains, the throughput of the IEEE 802.11 DCF can be very accurately calculated. The results show that the performance of DCF strongly depends on the network size, the incoming traffic loads, and the bit error rate (BER).