This paper describes the design and performance of anMary frequency shift keyed (FSK) signaling and demodulation scheme for an optical communication system using semiconductor lasers and heterodyne detection. Frequency or phase noise in semiconductor lasers causes spectral spreading, producing a nonzero linewidth laser signal. This degrades communication performance when compared to a system using an ideal laser with zero linewidth. We present estimates of the bit error rate (BER) performance ofM-ary frequency shift keying (FSK) with noncoherent demodulation in the presence of white Gaussian frequency noise and additive channel noise. This is typical of an optical system using semiconductor lasers and heterodyne detection. Estimates use the union-Chernoff bound with a simplified channel model to predict the effects of frequency noise. Two effects of frequency noise are identified: signal attenuation or suppression, and crosstalk. These cause an offset in the BER curve from the BER in the absence of frequency noise, and an error rate floor, respectively. The error rate floor is lower than previously predicted. When performance is not crosstalk limited,M-ary FSK is found to perform better than binary FSK with the same system bandwidth constraints, as would be predicted if ideal lasers are used. Theoretical results are compared with Monte Carlo simulations of the system.