ABSTRACT The star formation and gas content of satellite galaxies around the Milky Way (MW) and Andromeda (M31) are depleted relative to more isolated galaxies in the Local Group (LG) at fixed stellar mass. We explore the environmental regulation of gas content and quenching of star formation in z = 0 galaxies at $M_{*}=10^{5\!-\!10}\, \rm {M}_{⊙ }$ around 14 MW-mass hosts from the Feedback In Realistic Environments 2 (FIRE-2) simulations. Lower mass satellites ($M_{*}\lesssim 10^7\, \rm {M}_{⊙ }$) are mostly quiescent and higher mass satellites ($M_{*}\gtrsim 10^8\, \rm {M}_{⊙ }$) are mostly star forming, with intermediate-mass satellites ($M_{*}≈ 10^{7\!-\!8}\, \rm {M}_{⊙ }$) split roughly equally between quiescent and star forming. Hosts with more gas in their circumgalactic medium have a higher quiescent fraction of massive satellites ($M_{*}=10^{8\!-\!9}\, \rm {M}_{⊙ }$). We find no significant dependence on isolated versus paired (LG-like) host environments, and the quiescent fractions of satellites around MW-mass and Large Magellanic Cloud (LMC)-mass hosts from the FIRE-2 simulations are remarkably similar. Environmental effects that lead to quenching can also occur as pre-processing in low-mass groups prior to MW infall. Lower mass satellites typically quenched before MW infall as central galaxies or rapidly during infall into a low-mass group or a MW-mass galaxy. Most intermediate- to high-mass quiescent satellites have experienced ≥1–2 pericentre passages (≈2.5–5 Gyr) within a MW-mass halo. Most galaxies with $M_{*}\gtrsim 10^{6.5}\, \rm {M}_{⊙ }$ did not quench before falling into a host, indicating a possible upper mass limit for isolated quenching. The simulations reproduce the average trend in the LG quiescent fraction across the full range of satellite stellar masses. Though the simulations are consistent with the Satellites Around Galactic Analogs (SAGA) survey’s quiescent fraction at $M_{*}\gtrsim 10^8\, \rm {M}_{⊙ }$, they do not generally reproduce SAGA’s turnover at lower masses.