UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                        Washington, D. C.
                                
                            FORM 10-Q



(Mark One)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934

For the quarterly period ended March 30, 1997

                               OR

[ ]  Transition report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934


                Commission File Number:  0-20716


                        TACO CABANA, INC.

     (Exact name of registrant as specified in its charter)

            DELAWARE                       74-2201241
(State or other jurisdiction of         (I.R.S. Employer
 incorporation or organization)      Identification Number)

                  8918 Tesoro Drive, Suite 200
                   San Antonio, Texas   78217
            (Address of principal executive offices)
                                
                 Telephone Number (210) 804-0990
      (Registrant's telephone number, including area code)

     
     
     
           Indicate by check mark whether the registrant (1)
     has  filed all reports required to be filed by  Section
     13  or  15(d)  of the Securities Exchange Act  of  1934
     during  the  preceding 12 months (or for  such  shorter
     period  that the registrant was required to  file  such
     reports),  and  (2)  has been subject  to  such  filing
     requirements for the past 90 days:
     
           Yes   X                         No
     
           Indicate  the  number of shares of  each  of  the
     issuer's  classes  of common stock  as  of  the  latest
     practicable date:

                 Class          Outstanding at May 1, 1997
             ------------       --------------------------
             Common Stock           15,706,537 shares



                        TACO CABANA, INC.
                              INDEX


                                                          Page
                                                         Number

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements  (Unaudited)

Condensed Consolidated Balance Sheets at March 30, 1997        3
  and December 29, 1996
                                                             
Condensed Consolidated Statements of Income for the            4
  Thirteen Weeks Ended March 30, 1997 and March 31, 1996
                                                            
Condensed Consolidated Statements of Cash Flows for the        5
  Thirteen Weeks Ended March 30, 1997 and March 31, 1996
                                                            
Notes to Condensed Consolidated Financial Statements           6
                                                             
                                                             
Item 2.  Management's Discussion and Analysis of Financial     7
  Condition and Results of Operations


PART II.  OTHER INFORMATION

Items 1 through 5 have been omitted since the registrant has no
reportable events in relation to the items

Item 6. Exhibits and Reports on Form 8-K                      12
                                                           
Signature                                                     13
                                                           





                        TACO CABANA, INC.
              CONDENSED CONSOLIDATED BALANCE SHEETS
                           (UNAUDITED)

                                       December 29,     March 30,
                                           1996           1997
                                       ------------     ---------              
ASSETS                                                      
CURRENT ASSETS:                                             
Cash and cash equivalents               $    748,000   $  2,028,000
Receivables, net                             792,000        891,000
Inventory                                  1,858,000      2,059,000
Prepaid expenses                           1,353,000      1,269,000
Pre-opening costs, net                       129,000        232,000
Income taxes receivable                      363,000        441,000
Deferred income taxes                      1,827,000      2,215,000
                                         -----------    -----------
  Total current assets                     7,070,000      9,135,000
                                                            
PROPERTY AND EQUIPMENT, net               88,963,000     88,842,000
NOTES RECEIVABLE, net                        738,000        617,000
INTANGIBLE ASSETS, net                    45,394,000     45,053,000
OTHER ASSETS                                 541,000        523,000
                                         -----------    -----------            
TOTAL                                   $142,706,000   $144,170,000
                                         ===========    ===========            
LIABILITIES AND STOCKHOLDERS' EQUITY                               
CURRENT LIABILITIES:                                               
Accounts payable                        $  4,181,000   $  3,584,000
Accrued liabilities                        3,171,000      2,147,000
Current maturities of long-term debt                               
  and capital leases                       2,409,000      2,495,000
Line of credit                               625,000      3,200,000
                                         -----------    -----------
  Total current liabilities               10,386,000     11,426,000
                                                                   
LONG-TERM OBLIGATIONS, net of current                              
  maturities:                                                      
Capital leases                             4,041,000      3,986,000
Long-term debt                             6,593,000      5,977,000
                                         -----------    -----------
Total long-term obligations               10,634,000      9,963,000
                                         -----------    -----------            
ACQUISITION LIABILITIES                    4,212,000      4,197,000
DEFERRED LEASE PAYMENTS                      657,000        475,000
DEFERRED INCOME TAXES                      3,645,000      4,381,000
                                                                   
STOCKHOLDERS' EQUITY:                                              
Common stock                                 157,000        157,000
Additional paid-in capital                97,095,000     97,095,000
Retained earnings                         15,920,000     16,476,000
                                         -----------    -----------
  Total stockholders' equity             113,172,000    113,728,000
                                         -----------    -----------            
TOTAL                                   $142,706,000   $144,170,000
                                         ===========    ===========            
                                                                   
    See Notes to Condensed Consolidated Financial Statements.



                        TACO CABANA, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                           (UNAUDITED)



                                  For the Thirteen Weeks Ended
                                  ----------------------------             
                                      March 31,    March 30,
                                        1996          1997
                                  --------------   -----------     
                                                  
REVENUES:                                                     
Restaurant sales                     $31,119,000   $30,100,000
Franchise fees and royalty income        145,000        86,000
                                      ----------    ----------                 
  Total revenues                      31,264,000    30,186,000
                                      ----------    ----------                 
COSTS AND EXPENSES:                                           
Restaurant cost of sales               9,702,000     9,162,000
Labor                                  8,176,000     8,086,000
Occupancy                              2,051,000     2,047,000
Other restaurant operating costs       5,658,000     5,476,000
General and administrative             1,732,000     1,792,000
Depreciation and amortization          2,367,000     2,490,000
                                      ----------    ----------                 
  Total costs and expenses            29,686,000    29,053,000
                                      ----------    ----------                 
INCOME FROM OPERATIONS                 1,578,000     1,133,000
                                      ----------    ----------                 
INTEREST EXPENSE, NET                   (412,000)     (250,000)
                                      ----------    ----------                 
INCOME BEFORE PROVISION FOR 
  INCOME TAXES                         1,166,000       883,000

PROVISION FOR INCOME TAXES              (432,000)     (327,000)
                                      ----------    ----------                 
NET INCOME                           $   734,000   $   556,000
                                      ==========    ==========
                 
NET INCOME PER SHARE                 $      0.05   $      0.04
                                      ==========    ==========
                 
WEIGHTED AVERAGE SHARES OUTSTANDING   15,867,382    15,706,537
                                      ==========    ==========                

                                
    See Notes to Condensed Consolidated Financial Statements.




                        TACO CABANA, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED)
                                
                                
                                      For the Thirteen Weeks Ended
                                      ----------------------------
                                           March 31,     March 30,
                                              1996          1997
                                      --------------    ----------            
CASH FLOWS FROM OPERATING ACTIVITIES:                               
Net income                                 $   734,000    $  556,000
Adjustments to reconcile net income to                              
  net cash provided by operating activities:                            
    Depreciation and amortization            2,367,000     2,490,000
    Deferred income taxes                      453,000       348,000
    Capitalized interest                             -       (21,000)
    Changes in operating working capital
      items                                 (2,406,000)   (1,521,000)
                                            ----------    ----------           
Net cash provided by operating activities    1,148,000     1,852,000
                                            ----------    ----------
                                                                    
CASH FLOWS FROM INVESTING ACTIVITIES:                               
Purchase of property and equipment          (1,050,000)   (2,562,000)
Investment in joint venture                   (250,000)             -
                                            -----------   -----------          
Net cash used for investing activities      (1,300,000)   (2,562,000)
                                                                    
CASH FLOWS FROM FINANCING ACTIVITIES:                               
Proceeds from issuance of notes payable                             
  and draws on line of credit                  730,000     2,949,000
Principal payments under long-term debt       (446,000)     (911,000)
Principal payments under capital leases        (47,000)      (48,000)
Exercise of stock options                        6,000             -
                                            ----------    ----------           
Net cash provided by financing activities      243,000     1,990,000
                                            ----------    ---------- 
                                                                    
NET INCREASE IN CASH                            91,000     1,280,000
                                                                    
CASH AND CASH EQUIVALENTS, beginning of
  period                                     2,749,000       748,000
                                            ----------    ----------
                                                                    
CASH AND CASH EQUIVALENTS, end of period  $  2,840,000  $  2,028,000
                                           ===========    ==========           
                                                                    
    See Notes to Condensed Consolidated Financial Statements.

                                
                                
                                
                                
                                
                                
                                
                                
                                                            
                                
                        TACO CABANA, INC.
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                
                                
1.  Basis of Presentation

Principles  of  Consolidation  -  The  consolidated  financial
statements include all accounts of Taco Cabana, Inc.  and  its
wholly-owned  subsidiaries  (the  Company).   All  significant
intercompany balances and transactions have been eliminated.

The  unaudited  Condensed  Consolidated  Financial  Statements
include  all  adjustments,  consisting  of  normal,  recurring
adjustments   and   accruals,  which  the  Company   considers
necessary for fair presentation of financial position and  the
results  of  operations  for  the periods  presented.  Certain
information  and  footnote disclosures  normally  included  in
financial  statements  prepared in accordance  with  generally
accepted accounting principles have been condensed or omitted.
The interim financial statements should be read in conjunction
with  the  Company's Annual Report on Form 10-K for  the  year
ended December 29, 1996.

Recently Issued Accounting Pronouncements - In February  1997,
the  Financial Accounting Standards Board issued SFAS No.  128
"Earnings Per Share", which is required to be adopted  by  the
Company  in the reporting period ending December 28, 1997.  At
that  time, the Company will be required to change the  method
currently  used to compute earnings per share and  to  restate
all  prior periods. Under the new requirements for calculating
basic earnings per share, the dilutive effect of stock options
will be excluded. The Company has determined there would be no
impact  of  SFAS 128 on the calculation of earnings per  share
for the quarter ended March 30, 1997.

2.  Earnings per Share

Net  income per share has been computed by dividing net income
by  the  weighted average number of common shares  outstanding
during  each  period.  Common stock equivalent  shares,  which
relate  to stock options, are included in the weighted average
when the effect is dilutive.

3.   Supplemental Disclosure of Cash Flow Information



                                            Thirteen Weeks Ended
                                           ----------------------- 
                                           March 31,     March 30,
                                             1996           1997
                                           ----------    ----------  
                                           (Unaudited)   (Unaudited)

Cash paid for interest                     $   337,000    $   211,000
Interest capitalized on construction 
  costs                                              -         21,000

                                


             MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                
                                
Introduction

The  Company commenced operations in 1978 with the opening of the
first Taco Cabana restaurant in San Antonio, Texas.  As of May 1,
1997,  the  Company  had  107 Company-owned  restaurants  and  14
franchised  restaurants.   The  Company's  revenues  are  derived
primarily from sales by Company-owned restaurants, with franchise
fees  and  royalty  income contributing less  than  1%  of  total
revenues for the first quarter of the 1997 fiscal year.

During  the  thirteen  weeks ended March 30,  1997,  the  Company
opened  two  non-traditional  restaurants  located  within  H-E-B
grocery stores.  Additionally, a franchisee of the Company closed
one  restaurant, and a franchisee of the Company,  in  which  the
Company  has  a  joint-venture interest, closed two  restaurants.
Subsequent  to  March  30,  1997, the Company  opened  one  free-
standing restaurant.
The  following  table  sets forth for the periods  indicated  the
percentage  relationship  to  total  revenues,  unless  otherwise
indicated, of certain income statement data.  The table also sets
forth certain restaurant data for the periods indicated.
 
                                       Thirteen Weeks Ended
                                      ----------------------  
                                       March 31,   March 30,
                                         1996        1997
                                      ----------   ---------        
Income Statement Data:                          
REVENUES:                                  
Restaurant sales                          99.5%       99.7%
Franchise fees and royalty income          0.5         0.3
                                         -----       -----     
Total revenues                           100.0%      100.0%
                                         =====       =====     
COSTS AND EXPENSES:                        
  Restaurant cost of sales (1)            31.2%       30.4%
  Labor (1)                               26.3        26.9
  Occupancy (1)                            6.6         6.8
  Other restaurant operating costs (1)    18.2        18.2
  General and administrative costs         5.5         5.9
  Depreciation and amortization            7.6         8.2
                                         -----       -----       
INCOME FROM OPERATIONS                     5.0         3.8
                                                
INTEREST EXPENSE                          (1.3)       (0.8)
                                         -----       -----        
INCOME BEFORE INCOME TAXES                 3.7         2.9

PROVISION FOR INCOME TAXES                (1.4)       (1.1)
                                         -----       -----                     
NET INCOME                                 2.3%        1.8%
                                         =====       =====   
Restaurant Data:                                
Company-owned restaurants:                      
  Beginning of period                     106          104
  Opened                                    -            2
  Closed                                   (2)           -
                                         -----       -----    
  End of period                           104          106
                                               
FRANCHISED RESTAURANTS (2):                22           14
                                        -----        -----       
TOTAL RESTAURANTS:                        126          120
                                        =====        =====        
                                                


(1) Percentage is calculated based upon restaurant sales.
(2) Excludes Two Pesos licensed restaurants.



The Thirteen Weeks Ended March 30, 1997 Compared to the Thirteen
Weeks Ended March 31, 1996

Restaurant Sales.  Restaurant sales decreased by $1.0 million, or
3.3%,  to $30.1 million for the first quarter of 1997 from  $31.1
million  for  the first quarter in 1996. Comparable store  sales,
defined as Taco Cabana restaurants that have been open 18  months
or  more  at  the  beginning  of  the  quarter,  decreased  4.2%.
Comparable  store  sales in the Company's  core  markets  of  San
Antonio, Austin, Houston and Dallas, which represent over 90%  of
the Company's sales volume, decreased 2.2%. Management attributes
much  of  the  decline in sales in its core markets to  inclement
weather conditions and a decrease in advertising during the first
quarter of 1997 compared to the first quarter of 1996.

Franchise  Fees and Royalty Income.  Franchise and  royalty  fees
decreased  by  $59,000 to $86,000 for the first quarter  of  1997
compared  to  the  first  quarter of 1996,  due  primarily  to  a
decrease  in  franchise royalties. This decrease  was  due  to  a
decrease  in the number of franchise restaurants open during  the
first quarter in 1997 compared to the first quarter in 1996.

Restaurant  Cost of Sales.  Restaurant cost of sales,  calculated
as  a  percentage of restaurant sales, decreased to 30.4% in  the
first  quarter of 1997 from 31.2% for the first quarter of  1996.
The  decrease  was due primarily to the negotiation of  favorable
commodity  prices  during 1996 as well as  continued  operational
emphasis on this area.

Labor.   Labor  costs  calculated as a percentage  of  restaurant
sales  increased to 26.9% during the first quarter of  1997  from
26.3%  for  the same period in 1996. The increase is due  to  the
impact from the federal minimum wage increase in October 1996, as
well  as lower average unit volumes and an increase in wages paid
to  restaurant  management trainees during the first  quarter  of
1997 compared to the first quarter of 1996.

Occupancy.  Occupancy costs decreased slightly during  the  first
quarter  of  1997 compared to the first quarter of  1996.   As  a
percentage of restaurant sales, occupancy costs increased to 6.8%
in  the  first  quarter of 1997 compared to  6.6%  in  the  first
quarter of 1996, due to decreased sales at the restaurant level.

Other  Restaurant  Operating Costs.  Other  restaurant  operating
costs  decreased  to $5.5 million in the first  quarter  of  1997
compared  to  $5.7  million in the first  quarter  of  1996.  The
decrease  is  due to management's continued focus on  unit  level
operations  and  decreased sales at the restaurant  level.  As  a
percentage of restaurant sales, other restaurant operating  costs
remained constant at 18.2% for the first quarter of 1997 and  for
the first quarter of 1996.

General  and Administrative.  General and administrative expenses
increased to $1.8 million from $1.7 million, and increased  as  a
percentage  of  total revenues to 5.9% for the first  quarter  of
1997  from 5.5% for the comparable period in 1996. This  increase
was  primarily attributable to the addition of corporate  support
staff,  as well as an increased level of expenditures to  support
the Company's operations.


Depreciation  and  Amortization.  Depreciation  and  amortization
expense consisted of the following:

                                      Thirteen Weeks Ended
                                     -----------------------
                                     March 31,     March 30,
                                       1996           1997
                                     ---------    ----------
                                    (Unaudited)   (Unaudited)

Depreciation of property and
  equipment                          $ 1,647,000   $ 2,035,000
Amortization of intangible assets        404,000       416,000
Amortization of pre-opening costs        316,000        39,000


Depreciation expense increased by approximately $388,000 for  the
quarter ended March 30, 1997 compared to the quarter ended  March
31,  1996. The increase was primarily due to capital expenditures
on  existing restaurants during 1996. Amortization of pre-opening
expenses decreased by approximately $277,000 in the first quarter
of  1997  compared  to  the first quarter of  1996,  due  to  the
decrease  in  the number of stores opened during the most  recent
twelve-month  period  compared to the twelve-month  period  ended
March 31, 1996.

Interest   Expense,  net.   Interest  expense,  net  of  interest
capitalized on construction costs, decreased to $250,000  in  the
first quarter of 1997 from $412,000 in the first quarter of 1996,
primarily  as  a result of the repayment of $4.0 million  of  the
Company's  outstanding borrowings during the twelve months  ended
March  30, 1997. In addition, the Company capitalized $21,000  of
interest related to new restaurant construction. No interest  was
capitalized during the first quarter of 1996. The Company  earned
$31,000  of interest income during the first quarter of  1997  on
cash balances, compared to $40,000 of interest income during  the
first  quarter of 1996.  The decrease was due to a  reduction  in
short-term investments during 1996.

Net  Income  and  Earnings Per Share.  Net  income  decreased  to
$556,000 for the first quarter of 1997 from $734,000 for the same
period  in 1996.  Net income was 1.8% of total revenues  for  the
first  quarter in 1997 compared to 2.3% in the first  quarter  of
1996.  Earnings per share was $0.04 for the first quarter of 1997
compared  to  $0.05  in  the  same period  of  1996.   Management
believes  that  the  decrease is largely due to  lower  sales  at
Company-owned restaurants.

Liquidity and Capital Resources

Historically,  the  Company has financed business  and  expansion
activities  by  using funds generated from operating  activities,
build-to-suit leases, equity financing, short and long-term  debt
and  capital  leases.  The  Company maintains  credit  facilities
totaling  $20.0  million,  including  a  $5.0  million  unsecured
revolving  line  of credit. As of May 1, 1997, $8.7  million  had
been used under these facilities.

Net  cash  provided by operating activities was $1.9 million  for
the thirteen weeks ended March 30, 1997, and $1.1 million for the
thirteen weeks ended March 31, 1996.  Management attributes  much
of  the  change to a reduction in cash utilized for  accrued  and
acquisition liabilities during the first quarter of 1997 compared
to the first quarter of 1996.

Net  cash used in investing activities was $2.6 million  for  the
thirteen  weeks  ended  March  30, 1997,  representing  primarily
capital expenditures for the construction of new restaurants  and
improvements  to  existing restaurants.  This  compares  to  $1.3
million for the thirteen weeks ended March 31, 1996, representing
primarily  capital  expenditures  for  improvements  to  existing
restaurants and an investment of $250,000 in the Company's  joint
venture.

The  special  charge  recorded in  the  second  quarter  of  1995
included  an accrual of approximately $1.2 million to record  the
estimated  monthly  lease  payments,  net  of  expected  sublease
receipts,  associated with certain restaurants  which  have  been
closed.   Cash  requirements for this accrual were  approximately
$198,000 in the first quarter of 1997. Several of the restaurants
which  have  been  closed,  as well  as  the  Company's  previous
corporate offices, are currently for sale. Although there can  be
no  assurance  of  the  particular price at  which  any  of  such
properties  will  be sold, the Company expects to  receive  funds
equal  to  or  in  excess of the carrying value upon  the  actual
disposition   of   these   properties.   In   addition,   certain
acquisition  and  accrued liabilities related to  the  Two  Pesos
acquisition  were  reduced by payments of approximately  $387,000
during the first quarter of 1997.

The  special  charge recorded during the fourth quarter  of  1996
included  an  accrual  of  approximately  $1.0  million  for  the
estimated  lease  obligations, legal and professional  costs  and
other  costs  associated with the closing of  two  of  the  three
restaurants operated by a joint venture in which the Company  has
a   50%  interest.  Cash  requirements  for  this  accrual   were
approximately $25,000 in the first quarter of 1997.

On  April  16, 1997 the Company's Board of Directors  approved  a
plan to repurchase up to 1,500,000 shares of the Company's common
stock.  The timing, price, quantity and manner of purchases  will
be made at the discretion of management and will depend on market
conditions. The Company will fund the repurchase program  through
available  bank  credit facilities as well as the liquidation  of
the Company's short term investment portfolio.

The Company believes that existing cash balances, funds generated
from  operations, its ability to borrow, and the possible use  of
lease  financing will be sufficient to meet the Company's capital
requirements through 1997.

Impact of Inflation

Although increases in labor, food or other operating costs  could
adversely  affect the Company's operations, management  does  not
believe that inflation has had a material adverse effect  on  the
Company's operations to date.

Seasonality and Quarterly Results

The  Company's  sales  fluctuate seasonally.   Historically,  the
Company's  highest  sales and earnings occur in  the  second  and
third  quarters.  In addition, quarterly results are affected  by
the  timing  of  the  opening and closing of  stores.  Therefore,
quarterly results cannot be used to indicate the results for  the
entire year.

Forward-Looking Statements

Statements in this quarterly report, including those contained in
the  foregoing discussion and other items herein, concerning  the
Company   which   are   (a)  projections  of  revenues,   capital
expenditures  or other financial items, (b) statements  of  plans
and  objectives for future operations, (c) statements  of  future
economic  performance,  or  (d)  statements  of  assumptions   or
estimates  underlying  or supporting the foregoing  are  forward-
looking  statements  within the meaning of  Section  27A  of  the
Securities Act of 1933 and Section 21E of the Securities  Act  of
1934.   The  ultimate accuracy of forward-looking  statements  is
subject  to  a  wide  range  of business  risks  and  changes  in
circumstances, and actual results and outcomes often differ  from
expectations.  Any number of important factors could cause actual
results  to  differ materially from those in the  forward-looking
statements  herein,  including the  following:   the  timing  and
extent  of  changes  in  prices; actions  of  our  customers  and
competitors;  state and federal environmental,  economic,  safety
and  other policies and regulations, any changes therein, and any
legal  or regulatory delays or other factors beyond the Company's
control;   execution   of  planned  capital   projects;   weather
conditions  affecting the Company's operations or  the  areas  in
which  the  Company's  products are marketed;  natural  disasters
affecting   operations;  and  adverse  rulings,   judgments,   or
settlements  in litigations or other legal matters.  The  Company
undertakes  no obligation to publicly release the result  of  any
revisions to any such forward-looking statements that may be made
to  reflect events or circumstances after the date hereof  or  to
reflect the occurrence of unanticipated events.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the period covered by
this report.



Signature

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.


Dated:  May 12, 1997     Taco Cabana, Inc.
                         
                         
                         
                         
                         /s/ David G. Lloyd
                         ----------------------------                         
                         David G. Lloyd
                         Senior Vice President, Chief
                         Financial Officer,  Secretary and
                         Treasurer
                         
                         
                         
                         
                         Signing on behalf of the registrant
                         and as the principal financial and
                         accounting officer