UNITED STATES
              SECURITIES AND EXCHANGE COMMISSION
                    Washington, D.C. 20549
                                    

                              FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended    September 30, 1996
                                     OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from                     to                     


               Commission file number          0-11210        


                         Krupp Realty Fund, Ltd.-III

            Massachusetts                                 04-2763323
(State or other jurisdiction of                          (IRS employer
incorporation or organization)                     identification no.)

470 Atlantic Avenue, Boston, Massachusetts                      02210
(Address of principal executive offices)                     (Zip Code)


                               (617) 423-2233
            (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      
<PAGE>
                       PART I.  FINANCIAL INFORMATION

Item 1.  CONSOLIDATED FINANCIAL STATEMENTS

This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.  Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of
factors, including those identified herein.

                KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY

                         CONSOLIDATED BALANCE SHEETS
                                            

                                   ASSETS
<TABLE>
<CAPTION>
                                               September 30, December 31,
                                                   1996          1995    
<S>                                             <C>           <C>
Multi-family apartment complexes,
   less accumulated depreciation of
   $17,796,589 and $16,460,550, respectively    $11,685,669   $12,329,503
Cash and cash equivalents                           434,138       654,696
Required repair and replacement reserves            208,499       202,349 
Cash restricted for tenant security deposits        172,115       202,950
Prepaid expenses and other assets                   549,066       596,254
Deferred expenses, net of accumulated 
   amortization of $155,609 and $121,192,
   respectively                                     363,975       398,392

      Total assets                              $13,413,462   $14,384,144

                      LIABILITIES AND PARTNERS' DEFICIT

Mortgage notes payable                          $19,578,227   $19,826,061
Accounts payable                                      8,215        54,170
Accrued expenses and other liabilities              659,471       654,603

      Total liabilities                          20,245,913    20,534,834

Partners' deficit (Note 2):
   Investor Limited Partners
    (25,000 Units outstanding)                   (5,628,933)   (4,981,262)
   Original Limited Partner                        (899,100)     (871,828)
   General Partners                                (304,418)     (297,600)

      Total Partners' deficit                    (6,832,451)   (6,150,690)


      Total liabilities and Partners' deficit   $13,413,462   $14,384,144 
</TABLE>

                   The accompanying notes are an integral
               part of the consolidated financial statements.

<PAGE>
                KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                           
<TABLE>
<CAPTION>

                                       For the Three Months         For the Nine Months
                                        Ended September 30,         Ended September 30,  
                                       1996           1995          1996          1995   
<S>                              <C>            <C>           <C>           <C>
Revenue:
   Rental                        $1,642,708     $1,555,939    $4,895,567    $4,708,791
   Other income                      15,061          4,950        46,805        44,704
 
      Total revenue               1,657,769      1,560,889     4,942,372     4,753,495

Expenses:
   Operating (Note 3)               516,207        420,282     1,468,038     1,240,487
   Maintenance                      163,400        147,596       378,602       400,060
   General and administrative 
     (Note 3)                        21,236         60,499        59,259        91,699
   Real estate taxes                136,452        127,272       383,335       385,744
   Management fees (Note 3)          82,819         79,256       243,711       237,497
   Depreciation and amortization    477,649        434,880     1,370,456     1,282,763
   Interest                         432,583        461,835     1,303,361     1,325,039

      Total expenses              1,830,346      1,731,620     5,206,762     4,963,289
   Net loss                      $ (172,577)    $ (170,731)   $ (264,390)   $ (209,794)

Allocation of net loss (Note 2):

   Investor Limited Partner
      (25,000 Units outstanding) $ (163,949)    $ (162,195)   $ (251,171)   $ (199,304)

   Per Unit of Investor Limited 
      Partner Interest           $    (6.56)    $    (6.48)   $   (10.05)   $    (7.97)

   Original Limited Partner      $   (6,902)    $   (6,829)   $  (10,575)   $   (8,392)

   General Partners              $   (1,726)    $   (1,707)   $   (2,644)   $   (2,098)
</TABLE>

                   The accompanying notes are an integral
               part of the consolidated financial statements.

<PAGE>
                 KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               
<TABLE>
<CAPTION>
                                                  For the Nine Months Ended
                                                        September 30,      
                                                      1996          1995  
<S>                                               <C>           <C>
Operating activities:
   Net loss                                       $  (264,390)  $  (209,794)
   Adjustments to reconcile net loss to net cash  
      provided by operating activities:
         Depreciation and amortization              1,370,456     1,282,763
         Decrease (increase) in cash restricted 
            for tenant security deposits               30,835        (6,627)
         Decrease (increase) in prepaid expenses          
            and other assets                           47,188       (44,780)
         Decrease in accounts payable                 (48,699)      (21,479)
         Increase (decrease) in accrued expenses 
            and other liabilities                       4,868       (35,472)

               Net cash provided by operating
                  activities                        1,140,258       964,611

Investing activities:
   Additions to fixed assets                         (692,205)     (831,740)
   Funding to replacement reserve                      (6,150)      (46,422)
   Decrease in required repairs and replacement
      reserves                                           -          316,195
   Increase in accounts payable related to fixed
      asset additions                                   2,744          -   

               Net cash used in investing
                  activities                         (695,611)     (561,967)

Financing activities:
   Distributions                                     (417,371)     (313,150)
   Principal payments on mortgage notes payable      (247,834)     (226,636)

               Net cash used in financing
                  activities                         (665,205)     (539,786)

Net decrease in cash and cash equivalents            (220,558)     (137,142)

Cash and cash equivalents, beginning of the period    654,696       836,785

Cash and cash equivalents, end of the period      $   434,138   $   699,643

</TABLE>
                     The accompanying notes are an integral
                 part of the consolidated financial statements.
<PAGE>
                 KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           


(1)  Accounting Policies
     
     Certain information and footnote disclosures normally included in
     financial statements prepared in accordance with generally accepted
     accounting principles have been condensed or omitted in this report on
     Form 10-Q pursuant to the Rules and Regulations of the Securities and
     Exchange Commission.  In the opinion of the General Partners of Krupp
     Realty Fund, Ltd.-III, (the "Partnership"), the disclosures contained in
     this report are adequate to make the information presented not
     misleading.  See Notes to Consolidated Financial Statements included in
     the Partnership's annual Report on Form 10-K for the year ended December
     31, 1995 for additional information relevant to significant accounting
     policies followed by the Partnership.

     In the opinion of the General Partners of the Partnership, the
     accompanying unaudited consolidated financial statements reflect all
     adjustments (consisting of only normal recurring accruals) necessary to
     present fairly the Partnership's financial position as of September 30,
     1996, its results of operations for the three and nine months ended
     September 30, 1996 and 1995 and its cash flows for the nine months ended
     September 30, 1996 and 1995.  Certain prior year balances have been
     reclassified to conform with the current year consolidated financial
     statement presentation.

     The results of operations for the three and nine months ended September
     30, 1996 are not necessarily indicative of the results which may be
     expected for the full year.  See Management's Discussion and Analysis of
     Financial Condition and Results of Operations included in this report. 

(2)  Summary of Changes in Partners' Deficit

     A summary of changes in Partners' Deficit for the nine months ended
     September 30, 1996 is as follows:
<TABLE>
<CAPTION>
                             Investor     Original                Total
                             Limited      Limited     General    Partners'
                             Partners     Partner     Partners    Deficit  
     <S>                    <C>          <C>         <C>        <C>
     Balance at
        December 31, 1995   $(4,981,262) $(871,828)  $(297,600) $(6,150,690)

     Net loss                  (251,171)   (10,575)     (2,644)    (264,390)

     Distributions             (396,500)   (16,697)     (4,174)    (417,371)


     Balance at 
        September 30, 1996  $(5,628,933) $(899,100)  $(304,418) $(6,832,451)

</TABLE>
                                                                     
Continued
<PAGE>

              KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
          


(3)  Related Party Transactions

     Commencing with the date of acquisition of the Partnership's properties,
     the Partnership entered into agreements under which property management
     fees are paid to an affiliate of the General Partners for services as
     management agent.  Such agreements provide for management fees payable
     monthly at a rate of 5% of the gross receipts from the properties under
     management.  The Partnership also reimburses affiliates of the General
     Partners for certain expenses incurred in connection with the operation
     of the Partnership and its properties including accounting, computer,
     insurance, travel, legal and payroll; and with the preparation and
     mailing of reports and other communications to the Limited Partners.

     Amounts accrued or paid to the General Partners or their affiliates are
     as follows:
<TABLE>
<CAPTION>
                                   For the Three Months  For the Nine Months
                                    Ended September 30,  Ended September 30,
                                     1996        1995      1996      1995  

       <S>                         <C>         <C>       <C>       <C>
       Property management fees    $ 82,819    $ 79,256  $243,711  $237,497
     
       Expense reimbursements        48,456      41,685   145,936    87,542

          Charged to operations    $131,275    $120,941  $389,647  $325,039
           
</TABLE>
<PAGE>
                KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
                                           


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS  OF OPERATIONS
                                      
Liquidity and Capital Resources

This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements including those concerning
Management's expectations regarding the future financial performance and
future events.  These forward-looking statements involve significant risk and
uncertainties, including those described herein.  Actual results may differ
materially from those anticipated by such forward-looking statements.

Liquidity and Capital Resources

The Partnership's ability to generate cash adequate to meet its needs is
dependent primarily upon the operations of its real estate investments.  Such
ability is also dependent upon the future availability of bank borrowings and
the potential refinancing and sale of the Partnership's remaining real estate
investments.  These sources of liquidity will be used by the Partnership for
payment of expenses related to real estate operations, capital expenditures,
debt service and expenses.  Cash Flow, if any, as calculated under Section
8.2(a) of the Partnership Agreement, will then be available for distribution
to the Partners.  Due to improvements in the operations of the properties, the
Partnership has sufficient Cash Flow to increase semi-annual distributions
from an annual rate of $11.90 per Unit in 1995, to an annual rate of $15.86
per Unit in 1996.

The Partnership has spent approximately $692,000 for capital improvements at
its properties to date this year.  The Partnership believes that the
improvements are necessary to compete with current market conditions, produce
quality rental units and absorb excess market supply at the properties'
respective locations.  Renovations have included the replacement of
countertops, carpeting, appliances, and exterior painting and paving at
Hannibal Grove.  Improvements are expected to continue throughout the
remainder of the year. 

Cash Flow

Shown below, as required by the Partnership Agreement, is the calculation of
Cash Flow of the Partnership for the nine months ended September 30, 1996. 
The General Partners provide certain of the information below to meet
requirements of the Partnership Agreement and because they believe that it is
an appropriate supplemental measure of operating performance.  However, Cash
Flow should not be considered by the reader as a substitute to net income
(loss), as an indicator of the Partnership's operating performance or to cash
flow as a measure of liquidity. 
<TABLE>
<CAPTION>
                                                     Rounded to $1,000

   <S>                                                  <C> 
   Net income for tax purposes                          $   62,000     

   Items not requiring or (requiring) the use
      of operating funds:
         Tax basis depreciation and amortization         1,044,000 
         Principal payments on mortgage notes payable     (248,000)
         Expenditures for capital improvements            (692,000)  
         Releases from working capital reserves            251,000

   Cash Flow                                            $  417,000
</TABLE>
                                  Continued
<PAGE>
                KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
                                           


Operations

Cash Flow, net of working capital reserves, increased during the nine months
ended September 30, 1996 as compared to the nine months ended September 30,
1995, primarily due to a decrease in capital improvement expenditures.

Rental revenue increased for the three and nine months ended September 30,
1996, as compared to the three and nine months ended September 30, 1995, as a
result of increased rental rates at the Partnership's properties.  During the
same periods, other income also increased due to higher cash and cash
equivalent balances available for investment.

During the three months ended September 30, 1996, total expenses increased as
compared to the three months ended September 30, 1995, due to increases in
operating and real estate tax expenses, partially offset by a decrease in
general and administrative expense.  The increase in operating expense is due
to an adjustment of 1994 reimbursable expenses recorded in 1995, relating to
the operation of the Partnership and its properties.  Real estate taxes
increased due to higher property assessments.  General and administrative
expense decreased as a result of costs incurred in 1995 relating to the
valuation of the Partnership's properties.

For the nine months ended September 30, 1996, total expenses increased, as
compared to the same period in 1995, due to an increase in operating expense,
partially offset by decreases in both real estate tax and general and
administrative expenses.  Operating expense increased due to greater utility
consumption as a result of the unusually harsh winter weather, prior years'
insurance refunds received in 1995, and an increase in reimbursable expenses,
as described above.  The decrease in real estate tax expense is the result of
a 1995 real estate tax refund for Dorsey's Forge received in 1996, partially
offset by a rise in property assessments.  General and administrative expenses
also decreased as discussed above.

Depreciation expense for the three and nine months ended September 30, 1996,
as compared to the three and nine months ended September 30, 1995, increased
in conjunction with capital improvement expenditures.

General

In accordance with Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which is effective for fiscal years beginning after December 15, 1995, the
Partnership has implemented policies and practices for assessing impairment of
its real estate assets.

The investments in properties are carried at cost less accumulated
depreciation unless the General Partners believe there is a significant
impairment in value, in which case a provision to write down investments in
properties to fair value will be charged against income.  At this time, the
General Partners do not believe that any assets of the Partnership are
significantly impaired.
<PAGE>
                KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY

                         PART II - OTHER INFORMATION
                                            

Item 1. Legal Proceedings
        Response:  None

Item 2. Changes in Securities
        Response:  None

Item 3. Defaults upon Senior Securities
        Response:  None

Item 4. Submission of Matters to a Vote of Security Holders
        Response:  None

Item 5. Other Information
        Response:  None

Item 6. Exhibits and Reports on Form 8-K
        Response:  None

<PAGE>
                                  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.



                                     Krupp Realty Fund, Ltd. - III      
                                               (Registrant)

                                     BY:  /s/Robert A. Barrows              
                                          Robert A. Barrows
                                          Treasurer and Chief Accounting
                                          Officer of The Krupp Corporation,
                                          a General Partner.


DATE: November 5, 1996