The inclusion of students with disabilities has become a global trend and a hot discussion topic in education including physical education over the past 30 years. More recently, the Individuals with Disabilities Act Amendments of 1997 added a requirement of including students with disabilities to all assessments in education. Performance standards often serve as benchmarks to indicate how well students are to perform on content standards. Performance standards have also been used to help students with disabilities develop individual education programs, identify a least restrictive environment/placement, and report physical education grades. The challenge to set performance standards for students with disabilities arises when the needs and attributes of this population are taken into considerations. Determining whether students with disabilities should be held to the same or separate performance standards as their peers without disabilities is often a controversial point of debate. The major argument in favor of using differentiated performance standards with low expectations is that they are likely to promote tracking of learning, encourage achievement, and enrich self-concept of students with disabilities. However, if the performance standards are closely tied to the minimal requirements for the construct being measured, such as to be able to lift certain weights to become fireman, the same standards should be held for all those assessed. In addition, limited evidence suggests that holding students with disabilities to the same high standards as students without disabilities might produce benefits for them. Another challenge often faced when testing students with disabilities is how to apply performance standards when a test has been modified for those students, e.g., changed presentation and response format, modified test setting, used only portion of a test, or used substitute tests or alternative assessments. Except for a few of the physical fitness tests (e.g., the Brockport Physical Fitness Test), how to set physical performance standards for students with disabilities has basically not been explored. This presentation will review the critical issues, examine current practices, and propose possible future directions for setting performance standards in physical education for students with disabilities.