I usually perform data fusion in application layer. However, it can be done in network layer too. Finally, as wsn is a application oriented technology data fusion would be done at any layer.

in application layer

Data aggeregation is usually done at the application layer in heriarchical WSN. But in a mesh WSN aggregation can be considered to be done at the network layer by router nodes at every hop.

I believe it can be done in the sensor network, the Internet layer, at the application or application gateway.