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 September 28, 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 November 5, 1997
             Common Stock           14,834,600 shares
                        TACO CABANA, INC.
                              INDEX


                                                          Page
                                                         Number

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at September 28,     2
1997 and December 29, 1996
                                                            
Condensed Consolidated Statements of Operations for the    3
Thirteen Weeks Ended September 28, 1997 and September
29, 1996
                                                           
Condensed Consolidated Statements of Operations for the    4
Thirty-Nine Weeks Ended September 28, 1997 and
September 29, 1996
                                                           
Condensed Consolidated Statements of Cash Flows for the    5
Thirty-Nine Weeks Ended September 28, 1997 and
September 29, 1996
                                                           
Notes to Condensed Consolidated Financial Statements       6
                                                            
                                                            
Item 2.  Management's Discussion and Analysis of          7-14
Financial Condition and Results of Operations


PART II.  OTHER INFORMATION


Items 1, 2, 3 and 5 have been omitted since the             
registrant has no reportable events in relation to the
items
                                                          
Item 4.  Submission of Matters to a vote of Security     15
Holders
                                                          
Item 6. Exhibits and Reports on Form 8-K                 15
                                                          
Signature                                                16
                                                          

                                
                        TACO CABANA, INC.
              CONDENSED CONSOLIDATED BALANCE SHEETS
                           (UNAUDITED)
                                
                                       December 29,   September 28,
                                           1996           1997
                                       ------------   ------------     
ASSETS                                                      
CURRENT ASSETS:                                             
Cash and cash equivalents              $     748,000   $    218,000
Receivables, net                             792,000        751,000
Inventory                                  1,858,000      2,257,000
Prepaid expenses                           1,353,000      1,640,000
Pre-opening costs, net                       129,000        540,000
Federal income taxes receivable              363,000      1,578,000
Deferred income taxes                      1,827,000      1,454,000
                                         ------------    ----------
  Total current assets                     7,070,000      8,438,000
                                                                   
PROPERTY AND EQUIPMENT, net               88,963,000     92,428,000
NOTES RECEIVABLE, net                        738,000        358,000
INTANGIBLE ASSETS, net                    45,394,000     44,535,000
OTHER ASSETS                                 541,000        491,000
                                         -----------     ----------            
TOTAL                                   $142,706,000   $146,250,000
                                        ============   ============       
LIABILITIES AND STOCKHOLDERS' EQUITY                               
CURRENT LIABILITIES:                                               
Accounts payable                        $  4,181,000   $  3,611,000
Accrued liabilities                        3,171,000      2,900,000
Current maturities of long-term debt                               
and capital leases                          2,409,000     1,692,000
Line of credit                                625,000     3,684,000
                                          -----------    ----------
 Total current liabilities                 10,386,000    11,887,000
                                                                   
LONG-TERM OBLIGATIONS, net of current                              
  maturities:                                                      
Capital leases                             4,041,000      3,869,000
Long-term debt                             6,593,000      9,237,000
                                          ----------     ---------- 
Total long-term obligations               10,634,000     13,106,000
                                                                   
ACQUISITION LIABILITIES                    4,212,000      3,523,000
DEFERRED LEASE PAYMENTS                      657,000        543,000
DEFERRED INCOME TAXES                      3,645,000      5,585,000
                                                                   
STOCKHOLDERS' EQUITY:                                              
Common stock                                 157,000        157,000
Additional paid-in capital                97,095,000     97,095,000
Retained earnings                         15,920,000     17,915,000
Less:  Treasury stock at cost                                      
(872,000 shares)                                   -     (3,561,000)
                                         -----------     -----------
Total stockholders' equity               113,172,000     111,606,000
                                         -----------     -----------            
TOTAL                                   $142,706,000    $146,250,000
                                        ============    ============            
                                                                   
    See Notes to Condensed Consolidated Financial Statements.
                                
                                
                                
                                
                                
                                
                                
                        TACO CABANA, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                           (UNAUDITED)
                                
                                      For the Thirteen Weeks Ended
                                      ----------------------------
                                      September    September
                                      29, 1996      28, 1997
                                     ----------   ----------          
REVENUES:                                                     
Restaurant sales                     $33,676,000   $34,967,000
Franchise fees and royalty income        134,000        84,000
                                     -----------   -----------              
  Total revenues                      33,810,000    35,051,000
                                    ------------   -----------               
COSTS AND EXPENSES:                                           
Restaurant cost of sales              10,770,000    10,873,000
Labor                                  8,843,000     9,794,000
Occupancy                              2,038,000     2,123,000
Other restaurant operating costs       6,013,000     6,899,000
General and administrative             1,616,000     1,515,000
Depreciation and amortization          2,285,000     2,698,000
                                     -----------   -----------              
  Total costs and expenses            31,565,000    33,902,000
                                     -----------   -----------              
INCOME FROM OPERATIONS                 2,245,000     1,149,000
                                     -----------   -----------  
INTEREST EXPENSE, NET                  (308,000)     (256,000)
                                     -----------   -----------
INCOME BEFORE INCOME TAXES             1,937,000       893,000
                                     -----------   ----------- 
PROVISION FOR INCOME TAXES             (717,000)     (331,000)
                                                              
NET INCOME                           $ 1,220,000   $   562,000
                                     ===========   ===========               
NET INCOME PER SHARE                 $      0.08   $      0.04
                                     ===========   ===========               
WEIGHTED AVERAGE SHARES OUTSTANDING   16,014,352    15,036,811
                                     ===========   ===========                



                                
    See Notes to Condensed Consolidated Financial Statements.
                                
                        TACO CABANA, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                           (UNAUDITED)
                                
                                    For the Thirty-Nine Week Ended
                                    ------------------------------
                                     September     September
                                     29, 1996       28, 1997
                                    ----------     ---------         
REVENUES:                                                     
Restaurant sales                    $ 99,969,000   $99,171,000
Franchise fees and royalty income        413,000       267,000
                                    ------------   -----------               
  Total revenues                     100,382,000    99,438,000
                                    ------------   -----------                 
COSTS AND EXPENSES:                                           
Restaurant cost of sales              31,546,000    30,607,000
Labor                                 26,082,000    27,173,000
Occupancy                              6,134,000     6,222,000
Other restaurant operating costs      17,956,000    18,650,000
General and administrative             4,933,000     5,089,000
Depreciation and amortization          6,868,000     7,758,000
Litigation settlement                  3,400,000             -
                                     -----------   -----------                
  Total costs and expenses            96,919,000    95,499,000
                                     -----------   -----------                 
INCOME FROM OPERATIONS                 3,463,000     3,939,000
                                     -----------   -----------               
INTEREST EXPENSE, NET                (1,076,000)     (772,000)
                                     -----------   -----------               
INCOME BEFORE INCOME TAXES             2,387,000     3,167,000
                                                              
PROVISION FOR INCOME TAXES             (986,000)    (1,172,000)
                                                              
NET INCOME                          $ 1,401,000     $1,995,000
                                    ===========     ==========               
NET INCOME PER SHARE                $      0.09     $     0.13
                                    ===========     ==========              
WEIGHTED AVERAGE SHARES        
OUTSTANDING                          15,952,239     15,474,687
                                    ===========     ==========
                                                              


                                
    See notes to Condensed Consolidated Financial Statements.
                        TACO CABANA, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED)


                                          For the Thirty-Nine Weeks Ended
                                          -------------------------------
                                           September     September
                                            29, 1996      28, 1997
                                          ----------     ---------         
CASH FLOWS FROM OPERATING ACTIVITIES:                               
Net income                                $ 1,401,000   $ 1,995,000
                                            
Adjustments to reconcile net income to                              
net cash provided by operating activities:                            
    Depreciation and amortization           6,868,000     7,758,000
    Deferred income taxes                     735,000     2,313,000
    Capitalized interest                             -      (88,000)
    Deferred lease payments                  (277,000)     (114,000)
    Changes in operating working capital    
      items                                  (573,000)   (2,188,000)
                                            ----------   -----------            
Net cash provided by operating              
 activities                                 8,154,000     9,676,000
                                           ----------    ----------            
CASH FLOWS FROM INVESTING ACTIVITIES:                               
Purchase of property and equipment         (5,811,000)  (12,838,000)
Proceeds from sales of property and       
  equipment                                         -     1,379,000
Investment in joint venture                  (250,000)            -
                                           -----------   ----------  
Net cash used for investing activities     (6,061,000)  (11,459,000)
                                           -----------  ------------         
CASH FLOWS FROM FINANCING ACTIVITIES:                               
Proceeds from issuance of notes payable                             
  and draws on line of credit                       -     13,173,000
Principal payments under long-term debt                             
and line of credit                         (4,006,000)   (8,213,000)
Principal payments under capital leases      (164,000)     (146,000)
Purchase of treasury stock                          -    (3,561,000)
Exercise of stock options                      119,000            -
                                           -----------   -----------          
Net cash provided (used) by financing  
 activities                                 (4,051,000)    1,253,000
                                           ------------  -----------       
NET DECREASE IN CASH                        (1,958,000)     (530,000)
                                                                    
CASH AND CASH EQUIVALENTS, beginning of    
 period                                      2,749,000       748,000
                                            ----------    ----------            
CASH AND CASH EQUIVALENTS, end of period    $  791,000    $  218,000
                                            ==========    ==========            
                                                                    
    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
thirteen  weeks  and  the thirty-nine weeks ended  September  28,
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



                                       Thirty-Nine Weeks Ended
                                       -----------------------
                                       September     September
                                       29, 1996       28, 1997
                                      (Unaudited)   (Unaudited)
                                      -----------   -----------
Cash paid for interest                $   901,000    $   890,000
Interest capitalized on construction             -        88,000
costs
Cash paid for income taxes                  52,000        74,000
Cash received for income taxes                   -         4,000


             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. As of November  1,
1997  the Company had 111 company-owned, one joint-venture  owned
and 10 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 nine months of the 1997 fiscal year.

During  the  thirty-nine  weeks ended  September  28,  1997,  the
Company  opened  three  free-standing restaurants  and  two  non-
traditional  restaurants located with  in  grocery  stores.   The
Company converted two free-standing Sombrero Rosa restaurants and
two  Two  Pesos mall units to the Taco Cabana concept during  the
same  period.  Additionally, the Company acquired one  restaurant
from  a  franchisee,  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.
  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.

                               13 Weeks Ended             39 Weeks Ended
                              ---------------             --------------
                          September      September    September    September
                          29, 1996       28, 1997      29, 1996     28, 1997
                          ---------     ---------     ---------    ---------   
Operating Statement Data:
REVENUES:                                                          
Restaurant sales             99.6%          99.8%        99.6%        99.7%
Franchise fees and
 royalty income               0.4            0.2          0.4          0.3
                            ------         ------       ------       -----     
Total revenues              100.0%         100.0%       100.0%       100.0%
                            ======         ======       ======       ======     
COSTS AND EXPENSES:                                                
  Restaurant cost of sales   32.0%          31.1%        31.6%        30.9%
(1)
  Labor (1)                  26.3           28.0         26.1         27.4
  Occupancy (1)               6.1            6.1          6.1          6.3
  Other restaurant      
    operating costs (1)      17.9           19.7         18.0         18.8
  General and              
    administrative costs      4.8            4.3          4.9          5.1
  Depreciation and    
    amortization              6.8            7.7          6.8          7.8
  Litigation settlement        -              -           3.4            -
                             -----         ------        -----        ----- 
INCOME FROM OPERATIONS        6.6            3.3          3.4          4.0
                             -----         ------        -----        -----
INTEREST EXPENSE, net        (0.9)          (0.7)        (1.1)        (0.8)
                             -----         ------        -----        -----     
INCOME BEFORE INCOME TAXES    5.7           2.5           2.4          3.2
BENEFIT (PROVISION) FOR     
 INCOME TAXES                (2.1)         (0.9)         (1.0)        (1.2)
                             -----         -----         -----        -----
                                                                        
NET INCOME                    3.6%          1.6%         1.4%          2.0%
                             =====         =====        =====         =====    
Restaurant Data:                                                        
Company-owned                                                           
restaurants:
  Beginning of period        104            107          106          104
  Opened                       -              2            -            5
  Acquired                     -              1            -            1
  Closed                       -              -           (2)           -
                            ----           ----         ----         ----      
  End of period              104            110          104          110
                                                                        
Franchised (2)and joint-                                                 
venture owned                                                           
restaurants:                 20             11            20           11
                            ----          ----          ----         ----
Total restaurants:           124           121           124          121
                            ====          ====          ====         ==== 


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



The Thirteen Weeks Ended September 28, 1997 Compared to the
Thirteen Weeks Ended September 29, 1996

Restaurant Sales.  Restaurant sales increased by $1.3 million, or
3.8%,  to $35.0 million for the third quarter of 1997 from  $33.7
million  for  the  third quarter in 1996.  Management  attributes
much  of the increase in sales to the increased number of Company
owned  stores during the thirteen weeks ended September 28,  1997
compared  to  the same period in 1996.  Comparable  store  sales,
defined as Taco Cabana restaurants that have been open 18  months
or  more  at the beginning of the quarter, increased  0.1%.   The
Company  is  continuing to monitor and assess the performance  of
its  seven  units  in the Denver, Colorado market.   Despite  the
commitment  of increased advertising and marketing  resources  to
such  units  during the thirteen week period ended September  28,
1997, gross sales at such units have not materially increased and
have  averaged approximately $10,300 per week during the thirteen
week  period ended September 28, 1997.  There can be no assurance
that  the Company will be able to improve the performance of such
units  or  that the Company will not find it necessary  to  close
some  or  all  of such units, which would have a material  effect
upon results of operations.

Franchise  Fees and Royalty Income.  Franchise and  royalty  fees
decreased  by  $50,000 to $84,000 for the third quarter  of  1997
compared  to  the  third  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
third quarter in 1997 compared to the third quarter in 1996.

Cost  of  Sales.   Restaurant  cost of  sales,  calculated  as  a
percentage of restaurant sales, decreased to 31.1% in  the  third
quarter  of 1997 from 32.0% for the third quarter of  1996.   The
decrease  was  due  primarily  to the  continued  negotiation  of
favorable  commodity  prices  as well  as  continued  operational
emphasis on this area.

Labor.   Labor costs increased during the third quarter  of  1997
compared  to  the  third quarter of 1996, primarily  due  to  the
greater number of restaurants in operation during the quarter. As
a  percentage  of sales, labor costs increased to  28.0%  in  the
third  quarter of 1997 compared to 26.3% in the third quarter  of
1996.  This increase is due to new restaurant openings as well as
management's  commitment  to  increase  staffing  levels  at  the
restaurant   level  in  order  to  provide  a  consistent   guest
experience.

Occupancy.  Occupancy costs increased slightly during  the  third
quarter  of  1997  compared to the third quarter  of  1996.   The
increase  is  primarily  attributable to the  greater  number  of
Company owned restaurants in operation during the quarter.  As  a
percentage of restaurant sales, occupancy costs were 6.1% in  the
third quarter of 1997 and 1996.

Other  Restaurant  Operating Costs.  Other  restaurant  operating
costs  increased during the third quarter of 1997 as compared  to
the  same  period of 1996.  As a percentage of restaurant  sales,
other  restaurant operating costs increased to 19.7% compared  to
17.9%  in  the third quarter of 1996.  The increase is  primarily
due to additional marketing expenditures during the third quarter
of  1997  compared  to  the third quarter  of  1996  as  well  as
increased utility costs due to warm weather.
General  and Administrative.  General and administrative expenses
decreased  during the third quarter of 1997 to $1.5 million  from
$1.6  million in the comparable period of 1996.  As a  percentage
of  total revenues, general and administrative expenses decreased
to  4.3%  for  the  third  quarter of  1997  from  4.8%  for  the
comparable   period   in   1996.   The  decrease   is   primarily
attributable to lower bonus accruals during 1997.




Depreciation and amortization expense consisted of the following:

                                             Thirteen Weeks Ended
                                          --------------------------
                                          September 29,   September
                                               1996        28, 1997
                                           (Unaudited)   (Unaudited)
                                          -------------  -----------
Depreciation of property and equipment       $ 1,822,000  $ 2,214,000
Amortization of  intangible assets               416,000      382,000
Amortization of  pre-opening costs                47,000      102,000

Depreciation expense increased by approximately $392,000 for  the
quarter  ended  September 28, 1997 compared to the quarter  ended
September  29,  1996. The increase was primarily due  to  capital
expenditures  at  existing restaurants  during  the  past  twelve
months and the opening of six Company owned restaurants.

Interest   Expense,  net.   Interest  expense,  net  of  interest
capitalized on construction costs, decreased to $256,000  in  the
third  quarter of 1997 from $308,000 in the same period in  1996.
In  addition  the Company capitalized $43,000 of interest  during
the  third  quarter of 1997.  No interest was capitalized  during
the  third  quarter  of  1997.  The  Company  earned  $22,000  of
interest  income  during the thirteen weeks ended  September  28,
1997,  compared to $53,000 of interest income earned  during  the
thirteen weeks ended September 29, 1996. The decrease was due  to
a  reduction  in short-term investments during the twelve  months
ended September 28, 1997.

Net  Income  and Net Income Per Share.  Net income  decreased  to
$562,000  for the third quarter of 1997 from $1,220,000  for  the
same  period  in 1996. Net income was 1.6% of total revenues  for
the third quarter of 1997 compared to 3.6% for the same period in
1996. Earnings per share was $0.04 for the third quarter of  1997
compared  to  $0.08  in  the  same period  of  1996.   Management
believes  that  the decrease is largely due to  higher  costs  at
Company-owned restaurants.


The  Thirty-Nine Weeks Ended September 28, 1997 Compared  to  the
Thirty-Nine Weeks Ended September 29, 1996

Restaurant Sales.  Restaurant sales decreased by $ 798,000, or .8%,
to $99.2 million for the thirty-nine weeks ended September 28, 1997
from  $100 million for the comparable period in 1996.  Management
attributes  much of the decline in sales to increased  levels  of
competition  in the Company's core markets and inclement  weather
during  the  first  quarter  of  1997.  Comparable  store   sales
decreased  3.2% during the thirty-nine weeks ended September  28,
1997.   The  Company  is  continuing to monitor  and  assess  the
performance  of  its seven units in the Denver, Colorado  market.
Despite  the  commitment of increased advertising  and  marketing
resources  to  such  units  during the  thirty-nine  weeks  ended
September 28, 1997, gross sales at such units have not materially
increased and have averaged approximately $9,000 per week  during
the thirty-nine weeks ended September 28, 1997.  There can be  no
assurance   that  the  Company  will  be  able  to  improve   the
performance  of such units or that the Company will not  find  it
necessary to close some or all of such units, which would have  a
material  effect  upon  results  of  operations.  

Franchise Fee and Royalty Income.   Franchise  and royalty  fees
decreased by $146,000 to $267,000 for  the  thirty-nine  weeks
ended September 28, 1997 compared to the same  period of  1996, 
due primarily to a decrease in the number of franchise restaurants 
open during the thirty-nine weeks ended September 28, 1997 
compared to the same period in 1996.

Cost  of  Sales.   Restaurant  cost of  sales,  calculated  as  a
percentage of restaurant sales, decreased to 30.9% in the thirty-
nine  weeks  ended September 28, 1997 from 31.6% for the  thirty-
nine  weeks  ended  September  29, 1996.  The  decrease  was  due
primarily  to  the  continued negotiation of favorable  commodity
prices as well as continued operational emphasis on this area.

Labor.  Labor costs increased by $1.1 million during the  thirty-
nine  weeks ended September 28, 1997 compared to the same  period
of  1996.   As  a percentage of sales, labor costs  increased  to
27.4%  in  the thirty-nine week ended September 28, 1997 compared
to 26.1% in the same period of 1996. The increase is due to lower
average  unit  volumes  as  well as  management's  commitment  to
increase  staffing  levels at the restaurant level  in  order  to
provide a consistent guest experience.

Occupancy.  Occupancy costs increased slightly during the thirty-
nine  weeks ended September 28, 1997 compared to the same  period
in  1996.  As  a percentage of restaurant sales, occupancy  costs
increased  to  6.3% in the thirty-nine weeks ended September  28,
1997 compared to 6.1% in the same period of 1996. The increase is
due  to the opening of six new restaurants during the last twelve
months.

Other  restaurant  operating  costs. Other  restaurant  operating
costs  increased by $694,000 during the thirty-nine  weeks  ended
September  28, 1997 compared to the same period of  1996.   As  a
percentage of restaurant sales, other restaurant operating  costs
increased  to 18.8% during the thirty-nine weeks ended  September
28,  1997  compared to 18.0% in the same period of 1996 primarily
due  to decreased sales at the restaurant level. The increase  is
due  to additional marketing expenditures during the thirty  nine
weeks  ended  September 28, 1997 compared to the same  period  in
1996.
General  and Administrative.  General and administrative expenses
increased to $5.1 million from $4.9 million, and increased  as  a
percentage  of  total revenues to 5.1% for the thirty-nine  weeks
ended  September 28, 1997 from 4.9% 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, offset by lower
bonus accruals.

Depreciation and amortization expense consisted of the following:

                                           Thirty-Nine Weeks Ended
                                           -----------------------
                                            September    September
                                            29. 1996     28, 1997
                                           (Unaudited)  (Unaudited)
                                           -----------  -----------
Depreciation of property and equipment      $ 5,158,000 $ 6,351,000
Amortization of  intangible assets            1,236,000   1,194,000
Amortization of  pre-opening costs              474,000     213,000


Depreciation expense increased by approximately $1.2 million  for
the  thirty-nine weeks ended September 28, 1997 compared  to  the
thirty-nine weeks ended September 29, 1996. The increase  was due
primarily  to  six  restaurant openings during  the  most  recent
twelve  month period, as well as capital expenditures at existing
restaurants during the past twelve months. Amortization  of  pre-
opening  costs decreased by approximately $261,000 in the thirty-
nine  weeks  ended September 28, 1997 compared to the thirty-nine
weeks ended September 29, 1996.

Interest   Expense,  net.   Interest  expense,  net  of  interest
capitalized on construction costs, decreased to $772,000  in  the
thirty-nine weeks ended September 28, 1997 from $1.1  million  in
the  thirty-nine weeks ended September 29, 1996  primarily  as  a
result of average debt outstanding being reduced by $2.2. million
during the thirty nine weeks ended September 28, 1997 compared to
the  same  period in 1996.  In addition, the Company  capitalized
$88,000  of interest during the thirty-nine weeks ended September
28,  1997. No interest was capitalized during the same period  of
1996.  The  Company earned $64,000 of interest income during  the
thirty-nine weeks ended September 28, 1997, compared to  $155,000
of  interest  income  earned during the thirty-nine  weeks  ended
September 29, 1996. The decrease was due to a reduction in short-
term  investments  during the twelve months ended  September  28,
1997.

Net  Income  and Net Income Per Share.  Net income  increased  to
$1,995,000  for  the thirty-nine weeks ended September  28,  1997
from  $1,401,000 for the same period in 1996. Net income was 2.0%
of  total revenues for the thirty-nine weeks ended September  28,
1997  compared to 1.4% for the thirty-nine weeks ended  September
29,  1996. Earnings per share was $0.13 for the thirty-nine weeks
ended  September 28, 1997 compared to earnings per share of $0.09
in   the   same  period  of  1996.  Disregarding  the  litigation
settlement  recorded in the second quarter of 1996,  the  Company
would  have reported net income of $3,645,000 for the thirty-nine
weeks  ended  September  29,  1996, equal  to  $0.23  per  share.
Disregarding the litigation settlement, management believes  that
the  decrease  in  net income 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,  long-term  debt   and
capital  leases.  The Company maintains loan facilities  totaling
$20.0 million, including a $5.0 million unsecured revolving  line
of  credit. As of November 5, 1997, $12.9 million was outstanding
under these facilities.

Net  cash  provided by operating activities was $9.7 million  for
the  thirty-nine weeks ended September 28, 1997, and $8.2 million
for the thirty-nine weeks ended September 29, 1996. Net cash used
in  investing  activities was $11.5 million for  the  thirty-nine
weeks  ended  September 28, 1997, representing primarily  capital
expenditures  for  improvements  to  existing  restaurants,   the
construction  of  three  free-standing  and  two  non-traditional
restaurants, and the conversion of two Sombrero Rosa and two  Two
Pesos  restaurants to the Taco Cabana concept, compared  to  $6.1
million  for  the  thirty-nine weeks ended  September  29,  1996,
representing  primarily capital expenditures for improvements  to
existing restaurants.

Net  cash  provided by financing activities was $1.3 million  for
the  thirty-nine  weeks  ended September 28,  1997,  representing
primarily   borrowings  under  the  Company's  debt   facilities,
compared to net cash used by financing activities of $4.1 million
in  the  same  period  of  1996, representing  repayment  of  the
Company's line of credit and long-term debt.

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.  As  of  September  28, 1997 the Company  had  repurchased
872,000  shares  at  an  average cost of $4.08  per  share.   The
timing,  price,  quantity and manner of remaining  purchases,  if
any,  will  be made at the discretion of management and  will  be
dependent  upon  market conditions. The Company  has  funded  the
repurchases through available bank credit facilities, as well  as
the liquidation of the Company's short term investment portfolio.
Remaining purchases, if any, will be funded through a combination
of   cash  provided  by  operations  and  available  bank  credit
facilities.

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 thirty-nine weeks  ended  September
28, 1997.

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
$258,000  in  the  thirty-nine weeks ended  September  28,  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  will
receive  funds  upon the actual disposition of these  properties.
During  the  third quarter of 1997, the Company  sold  properties
relating  to  the special charge which resulted  in  proceeds  of
$603,000.   In   addition,   certain  acquisition   and   accrued
liabilities related to the Two Pesos acquisition were reduced  by
payments  of approximately $971,000 during the thirty-nine  weeks
ended September 28, 1997.
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 1998, including the planned opening  of  two
to  three free-standing restaurants during the remainder of  1997
and twelve to fifteen free-standing restaurants during 1998.

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  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 4.  Submission of Matters to a Vote of Security Holders

At the annual meeting of stockholders held on August 12, 1997,
the Company's stockholders elected five directors and approved an
amendment to the Taco Cabana 1994 Stock Option Plan ("the Plan")
to increase the number of shares authorized for issuance from
500,000 shares to 1,250,000 shares.  There were  11,622,016 votes
cast for the amendment to the Plan and 1,578,847 votes cast
against the amendment to the Plan and 42,963 votes abstaining
from voting on the amendment to the Plan..  There were no broker
non-votes with regards to the election of the directors and the
amendment to the Plan.  With regard to the election of the
directors, the votes were as follows:

                         For            Withheld
                       ----------       --------
     Stephen V. Clark  12,516,867        159,719
     William J. Nimmo  13,195,333        156,354
     Richard Sherman   13,194,933        156,754
     Cecil Schenker    13,186,973        164,714
     Lionel Sosa       13,188,690        162,997

Item 6. Exhibits and Reports on Form 8-K

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


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