We have investigated phase stability in the layered LixCoO2 intercalation compound for x < 0.4 from first principles. By combining a lattice model description of the Li-vacancy configurational degrees of freedom with first-principles pseudopotential calculations, we have calculated the free energy of the material as a function of Li concentration in three different host structures : (i) the rhombohedral form of LixCoO2, (ii) the hexagonal form of CoO2, and (iii) a stage II compound of LixCoO2 in which the host structure can be considered as a hybrid of the rhombohedral and hexagonal host structures. The first-principles free energies indicate that the stage II compound is the most stable of the three phases for Li concentrations ranging between 0.12 and 0.19. This result is consistent with the experimental observation by Ohzuku and Ueda(1) and Amatucci et al.(2) that the rhombohedral form of LixCoO2 transforms to a new phase at Li concentrations around x = 0.15. We find that the calculated X-ray powder diffraction patterns of the stage II structure agree qualitatively with those observed experimentally at low Li concentration.(1,2)