Steady and unsteady flowfields around an airfoil are simulated numerically using a compressible Navier-Stokes solver and a potential flow panel code interactively. The Navier-Stokes equations are solved in the close proximity of an airfoil and in its wake. The inviscid flowfield surrounding the viscous flow regions is assumed to be irrotational and isentropic. in the inviscid flow region, the potential flow equations, which are based on the distributed sources and vortices are solved. The two solutions are strongly coupled through the application of their boundary conditions. The strongly coupled Navier-Stokes/potential flow interactive method confines the computations to a close proximity of an airfoil. For steady flow solutions, the computational domain may be confined to a region which extends less than 20% chord length away from the air foil surface. Computed flowfields have the same accuracy as the full domain Navier-Stokes solutions. Yet, as a result of the significantly reduced computational domain and increased convergence rates, the Navier-Stokes/potential flow interactive method is about 40% more efficient computationally.