Rate adaptation algorithms play a crucial role to adopt the most appropriate rate depending on current channel condition in the IEEE 802.11 WLAN. Several algorithms were published for selection of appropriate data rate. Rate adaptation algorithms without loss differentiation [3–11] always consider that the frame loss is due to channel fading and it demands a change in rate. These algorithms work well in a network with two nodes and as the number of competing stations increase the performance severally degrades. Rate adaptation algorithms with loss differentiation [12–17] emphasize on the fact that channel fading and collision are the two reasons of frame loss in WLAN. If the frame loss is due to channel fading only then the data rate is decreased. This algorithm shows better performance than the algorithms without loss differentiation. This paper presentsan algorithm which is based on combination of two algorithms RSS based rate estimation[10] and LDARF[12] to more accurately estimate channel conditions and decrease data rate only in response to channel fading by differentiating loss at the receiver side. Proposed algorithm shows average-aggregate-throughput improvement on ARF [3] and RSS [10] based rate estimation algorithms.