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

                                    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 30, 2006

                                       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:      0-27432
                             ----------------


                         CLEAN DIESEL TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

                 Delaware                         06-1393453
              --------------                   ----------------
         (State of Incorporation)              (I.R.S. Employer
                                              Identification No.)

Clean Diesel Technologies, Inc.
300 Atlantic Street - Suite 702
Stamford, CT                                      06901-3522
(Address of principal executive offices)          (Zip Code)

                                 (203) 327-7050
              (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 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  by  check  mark  whether  the registrant is a large accelerated filer,
accelerated  filer,  or  a non-accelerated filer. See definition of "accelerated
filer  and  large accelerated filer" in Rule 12b-2 of the Exchange Act.   (Check
one):

Large Accelerated Filer         Accelerated Filer      Non-Accelerated Filer X
                       ---                       ---                        ---

Indicate  by check mark whether the registrant is a shell company (as defined in
Rule  12b-2  of  the  Exchange  Act).

                                Yes       No X
                                   ---      ---


As of November 10, 2006, there were outstanding 26,162,459 shares of Common
Stock, par value $0.05 per share, of the registrant.

================================================================================


<PAGE>
<TABLE>
<CAPTION>
                         CLEAN DIESEL TECHNOLOGIES, INC.

               Form 10-Q for the Quarter Ended September 30, 2006

                                      INDEX

                                                                        Page
                                                                        ----
<S>        <C>                                                          <C>
PART I.    FINANCIAL INFORMATION

Item 1.    Condensed Financial Statements

           Balance Sheets as of September 30, 2006 (Unaudited),            3
           and December 31, 2005

           Statements of Operations for the Three and Nine Months          4
           Ended September 30, 2006 and 2005 (Unaudited)

           Statements of Cash Flows for the Nine Months                    5
           Ended September 30, 2006 and 2005 (Unaudited)

           Notes to Financial Statements                                   6

Item 2.    Management's Discussion and Analysis of                        12
           Financial Condition and Results of Operations

Item 3.    Quantitative and Qualitative Disclosures about Market Risk     14

Item 4.    Controls and Procedures                                        14


PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings                                              16
Item 2.    Changes in Securities                                          16
Item 3.    Defaults upon Senior Securities                                16
Item 4.    Submission of Matters to a Vote of Security Holders            16
Item 5.    Other Information                                              16
Item 6.    Exhibits and Reports on Form 8-K                               16


SIGNATURES & CERTIFICATIONS                                             17
</TABLE>


                                     -2-
<PAGE>
PART I.     FINANCIAL INFORMATION
Item 1.     Condensed Financial Statements

<TABLE>
<CAPTION>
                                    CLEAN DIESEL TECHNOLOGIES, INC.

                                       CONDENSED BALANCE SHEETS

                                                            (in thousands, except share data)

                                                           SEPTEMBER 30,        December 31,
                                                                2006                2005
                                                            (Unaudited)
<S>                                                      <C>                 <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                $           1,252   $           4,513
Accounts receivable, net of allowance of $18 and $11 in
  2006 and 2005, respectively                                          183                 125
Inventories                                                            440                 285
Other current assets                                                   115                  94
Subscription receivable, net                                             0                 488
                                                         ------------------  ------------------
TOTAL CURRENT ASSETS                                                 1,990               5,505
Patents, net                                                           608                 567
Fixed assets, net of accumulated depreciation of $307
  and $259 in 2006 and 2005, respectively                              117                 175
Other assets                                                            37                  27
                                                         ------------------  ------------------
TOTAL ASSETS                                             $           2,752   $           6,274
                                                         ==================  ==================


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:

Deferred revenue                                                         0                   9
Accounts payable and accrued expenses                                  590                 487
                                                         ------------------  ------------------
TOTAL CURRENT LIABILITIES                                              590                 496

STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.05 per share,
100,000 shares authorized, no shares issued
  and outstanding                                                       --                  --
Common Stock, par value $0.05 per share, authorized
  45,000,000 shares, issued and outstanding
  26,162,459 and 25,369,358 shares respectively                      1,308               1,268
Common Stock, par value $0.05 per share, subscribed
  and to be issued; 705,113 shares in 2005                               0                  35
Additional paid-in capital                                          44,334              44,068
Accumulated deficit                                                (43,480)            (39,593)
                                                         ------------------  ------------------
TOTAL STOCKHOLDERS' EQUITY                                           2,162               5,778
                                                         ------------------  ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $           2,752   $           6,274
                                                         ==================  ==================
</TABLE>

See notes to condensed financial statements.


                                     -3-
<PAGE>
<TABLE>
<CAPTION>
                                   CLEAN DIESEL TECHNOLOGIES, INC.
                                  CONDENSED STATEMENTS OF OPERATIONS
                                               (Unaudited)

                                                     (in thousands except per share data)

                                                  Three Months Ended         Nine Months Ended
                                                     September 30,             September 30,
                                                   2006         2005         2006          2005
                                               ------------  ----------  -------------  ----------
<S>                                            <C>           <C>         <C>            <C>
REVENUE:
Additive revenue                               $       161   $      97   $        457   $     283
Hardware revenue                                        74          56            191         314
License, royalty and other revenue                     104          13            239          29
                                               ------------  ----------  -------------  ----------
Total revenue                                          339         166            887         626

COSTS AND EXPENSES:
Cost of revenue                                        206         102            478         373
General and administrative                           1,157       1,260          3,872       3,635
Research and development                                52         222            447         369
Patent amortization and other patent expense            53          61            146         125
                                               ------------  ----------  -------------  ----------

Loss from operations                                (1,129)     (1,479)        (4,056)     (3,876)
Other income (expense):
Foreign currency exchange gain/(loss)                    7         (12)           101        (106)
Interest income                                          8           2             56          16
Miscellaneous income                                     0           0             12           0
                                               ------------  ----------  -------------  ----------

Net loss                                       $    (1,114)  $  (1,489)  $     (3,887)  $  (3,966)
                                               ============  ==========  =============  ==========

BASIC AND DILUTED LOSS PER COMMON SHARE        $     (0.04)  $   (0.09)  $      (0.15)  $   (0.23)
                                               ============  ==========  =============  ==========

WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES OUTSTANDING - BASIC AND DILUTED            26,162      17,193         26,120      17,176
                                               ============  ==========  =============  ==========
</TABLE>

See notes to condensed financial statements.


                                     -4-
<PAGE>
<TABLE>
<CAPTION>
                         CLEAN DIESEL TECHNOLOGIES, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                         (in thousands)

                                                        Nine Months Ended
                                                          September 30,

                                                         2006        2005
                                                     -----------  ----------
<S>                                                  <C>          <C>
OPERATING ACTIVITIES
Net loss                                             $   (3,887)  $  (3,966)
Adjustments to reconcile net loss to cash used in
  operating activities:
    Depreciation and amortization                           116         126
    Write-off patent and bad debt provision                  26          85
    Non-cash compensation expense for stock options         155          --
  Changes in operating assets and liabilities:
    Accounts receivable                                     (76)         35
    Inventories                                            (149)         79
    Other current assets and security deposits              (31)        (14)
    Accounts payable and accrued expenses                   196        (148)
                                                     -----------  ----------
Net cash used in operating activities                    (3,650)     (3,507)
                                                     -----------  ----------

INVESTING ACTIVITIES
Patent costs                                                (93)       (185)
Purchase of fixed assets                                    (20)        (79)
                                                     -----------  ----------
Net cash used in investing activities                      (113)       (264)
                                                     -----------  ----------

FINANCING ACTIVITIES
Proceeds from exercise of stock options                      14          --
Proceeds from receipt of subscription receivable            488          --
                                                     -----------  ----------
Net cash provided by financing activities                   502          --
                                                     -----------  ----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                (3,261)     (3,771)
Cash and cash equivalents at beginning of period          4,513       4,265
                                                     -----------  ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $    1,252   $     494
                                                     ===========  ==========


Non-cash financing activities
  Accrued expenses settled in common stock           $       94   $      71
</TABLE>

See notes to condensed financial statements.


                                     -5-
<PAGE>
                         CLEAN DIESEL TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (Unaudited)

NOTE  1:  BASIS  OF  PRESENTATION

The  accompanying  unaudited,  condensed, consolidated financial statements have
been  prepared  in  accordance with generally accepted accounting principles for
interim  financial  information  and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and  footnotes required by generally accepted accounting principles for complete
financial  statements.  In the opinion of management, all adjustments considered
necessary  for  a fair presentation have been included. All such adjustments are
of  a  normal  recurring  nature. Operating results for the three and nine month
periods  ended September 30, 2006, are not necessarily indicative of the results
that  may  be expected for the year ending December 31, 2006.  The balance sheet
at  December  31, 2005 has been derived from the audited financial statements at
that  date  but  does  not  include  all  the  information and notes required by
generally  accepted  accounting  principles  for  complete  financial  statement
presentation.   For  further  information, refer to the Financial Statements and
footnotes  thereto  included in the Company's Annual Report on Form 10-K for the
year  ended  December  31,  2005.

Clean  Diesel  Technologies,  Inc.  (the "Company", "Clean Diesel" or "CDT") was
incorporated  in  the  State  of Delaware on January 19, 1994, as a wholly owned
subsidiary  of Fuel-Tech Inc., formerly Fuel Tech N.V. ("Fuel Tech").  Effective
December 12, 1995, Fuel Tech completed a Rights Offering of the Company's Common
Stock  that  reduced  its ownership in the Company to 27.6%. Fuel Tech currently
holds  a  7.0%  interest  in  the  Company  as  of  September  30,  2006.

The Company is a specialty chemical and energy technology company supplying fuel
additives  and  proprietary  systems that reduce harmful emissions from internal
combustion  engines  while  improving fuel economy.  The Company's Platinum Plus
FBC  fuel additive is registered with the EPA for on-highway use and is approved
under  the  VERT-VSET  procedure.  The  Platinum  Plus FBC in combination with a
diesel  oxidation  catalyst  or  a  catalyzed  wire  mesh  filter have both been
verified  by  the  EPA  for  retrofit  emission  reduction.  The  success of the
Company's  technologies  will  depend  upon  the  market  acceptance  of  the
technologies  and  governmental  regulations including corresponding foreign and
state  agencies.

Clean Diesel has been unable to generate positive cash flows from its operations
in  the  past.  The  Company  does not have any credit facilities available with
financial  institutions  or  other  third  parties.  If the Company is unable to
generate cash flow from operations in the future, Clean Diesel will be dependent
upon  external  sources  of  best-efforts  financing, of which there are no firm
commitments  or  arrangements.  Based  on the current operating plan, management
believes  that  the cash balance as of September 30, 2006 of $1.252 million will
be  sufficient  to  meet  the cash needs into the first quarter of 2007.  In the
future, unless operating revenues are sufficient to meet operating expenses, the
Company  will  need  to  access  capital markets to fund operations by incurring
indebtedness or issuing equity securities.  The Company can provide no assurance
that  it  will  be  successful  in  any  future  financing  effort to obtain the
necessary  working  capital  to  support  operations  or  if  such  financing is
available,  it  will  be on acceptable terms.  If management is unable to obtain
the  necessary  financing from external sources, the Company will need to manage
any  cash  shortfalls by taking measures which may include deferring or reducing
the scope of commercialization efforts, reducing costs and overhead expenses, or
otherwise  curtailing  operations, or obtaining funds by a disposition of assets
or  through arrangements with others that may require Clean Diesel to relinquish
rights  to  certain  of  its  technologies,  or  to  license  the rights to such
technologies  on  terms  that  are  less  favorable  to  Clean Diesel than might
otherwise be available. The condensed financial statements have been prepared on
a  going concern basis and do not reflect any adjustments that might result from
the  outcome  of  this  uncertainty.

NOTE  2:  SIGNIFICANT  ACCOUNTING  POLICIES

FOREIGN CURRENCY

The  US  dollar  is  considered  the  functional  currency  for  Clean  Diesel
Technologies,  Inc.  and the British Sterling is the functional currency for its
UK branch office.  Assets and Liabilities of the UK branch office are translated
to  US  dollars


                                     -6-
<PAGE>
using  the  exchange  rates  in  effect  at  the balance sheet date.  Results of
operations  are  translated  using  weighted  average  exchange rates during the
period.  Adjustments  resulting  from  the  translation  process  which  are not
significant  through  September 30, 2006 are included in a separate component of
Shareholders'  Equity.  Clean  Diesel recorded a foreign currency gain of $7,000
and  $101,000  on  its  UK  bank  holdings  for  the three and nine months ended
September  30, 2006 versus a loss of ($12,000) and ($106,000) for the same three
and  nine  month  period  ended  September  30, 2005, which is included in other
income  (expense)  in  the  accompanying  statement  of  operations.

INVENTORIES

Inventories  are  stated  at  the  lower  of  cost  or market and consist of the
following:

<TABLE>
<CAPTION>
                                SEPTEMBER 30,   December 31,
    (in thousands)                   2006           2005
                                --------------  -------------
<S>                             <C>             <C>
  Finished Platinum Plus FBC    $          125  $          59
  Platinum concentrate/metal               175            119
  Hardware (ARIS and Purifier)              83             55
  Other                                     57             52
                                --------------  -------------
  Total inventory               $          440  $         285
</TABLE>

REVENUE RECOGNITION

Clean Diesel Technologies generates revenue from the sale of additives including
the  Platinum  Plus  FBC  products  and  concentrate; hardware including the EPA
verified  Purifier  System  and  catalyzed  wire mesh filter, ARIS injectors and
dosing systems; and license, royalty fees and other revenue from the ARIS System
and market analysis/consulting. CDT sells to end-user fleets, municipalities and
construction  companies,  as  well  as  fuel  resellers,  additive  distribution
companies  and  emission  reduction  companies.

CDT  shipping  terms  are  FOB shipping point but revenue is recognized when its
products are received and collections are reasonably assured unless the purchase
order or contract specifically requires CDT to provide installation of hardware.
For  hardware projects where CDT is responsible for installation either directly
or  indirectly (third-party contractor), revenue is recognized when the hardware
is  installed  and/or  accepted  if  the project requires inspection/acceptance.

License  revenue  is  recognized when the license agreement is entered into, the
license  period  commences, the technology rights, information and know-how have
been  transferred  to  the  licensee  and  CDT  does  not  have  any  ongoing
responsibilities  or  performance  requirements  and  collection  is  reasonably
assured.  Royalty  income  is  recognized  when  earned.

In  January  2006 Clean Diesel signed a one year contract with a new customer to
provide certain consulting and market analysis services for a fee of 130,000 GBP
(approximately  $230,000).  The Company was recognizing the revenue ratably over
the  12  month  term  of  the  contract.  During the three and nine months ended
September  30, 2006, the Company recorded $56,096 and $182,731, respectively, of
revenues  relating  to this contract.  In September 2006 the customer terminated
the  contract as allowed in the contract and paid Clean Diesel fully through the
termination  date.  Clean  Diesel  does  not  expect to recognize any additional
revenue  from  this  agreement.

GEOGRAPHIC  INFORMATION

CDT sells its Platinum Plus additives and hardware and ARIS systems licenses
throughout the world.  A geographic breakdown of revenue consists of the
following:

<TABLE>
<CAPTION>
                      Third Quarter      Year to Date
    (in thousands)    2006     2005     2006     2005
                    --------  -------  -------  -------
<S>                 <C>       <C>      <C>      <C>
    REVENUE:
    US              $    211  $   104  $   537  $   531
    UK/Europe             89        8      300       28
    Asia                  39       54       50       67
                    --------  -------  -------  -------
    Total Revenue   $    339  $   166  $   887  $   626
</TABLE>


                                     -7-
<PAGE>
Patents  held  by  Clean  Diesel  consist  of  capitalized  patent  costs net of
accumulated  amortization  and  are  as  follows:

<TABLE>
<CAPTION>
                           SEPTEMBER 30,   December 31,
    (in thousands)              2006           2005
                           --------------  -------------
<S>                        <C>             <C>
    US patents, net        $          177  $         138
    Foreign patents, net              431            429
                           --------------  -------------
    Total patents, net     $          608  $         567
</TABLE>

PATENT EXPENSE

CDT  capitalizes  all  direct  incremental  costs associated with initial patent
filing  costs  and  amortizes the cost over the estimated remaining life of such
patent.  Patents are reviewed regularly and the remaining carrying values of any
patents deemed not commercial or cost effective are written off.  The expiration
dates  of  CDT's patents, in numerous countries throughout the world, range from
2006  to  2025.

RESEARCH AND DEVELOPMENT COSTS

Costs  relating to the research, development and testing of products are charged
to  operations  as  they are incurred. These costs include test programs, salary
and  benefits,  consultancy  fees,  materials  and  certain  testing  equipment.

GENERAL  AND  ADMINISTRATIVE  EXPENSE

General  and  administrative  expense  is  summarized  as  the  following:

<TABLE>
<CAPTION>
                                              Third Quarter      Year to Date
  (in thousands)                              2006     2005     2006     2005
                                             ------  --------  -------  -------
<S>                                          <C>     <C>       <C>      <C>
  Compensation and benefits                  $  748  $    809  $ 2,644  $ 2,363
  Occupancy                                      98       128      308      369
  Professional                                  179       241      611      639
  Other                                         132        82      309      264
                                             ------  --------  -------  -------
Total general and administrative expense     $1,157  $  1,260  $ 3,872  $ 3,635
</TABLE>

Included  in  the 2006 year to date compensation and benefit expense is $357,475
of  severance charges related to the departure of James Valentine, President and
Chief  Operating  Officer.  Clean  Diesel  announced  in  January  2006 that Mr.
Valentine  had  been  "released  from employment and resigned as director of the
company."  The  balance  sheet  at September 30, 2006 includes accrued severance
charges  of  $105,000 representing salary and benefit costs for the remainder of
the one year employment contract between Clean Diesel and Mr. Valentine which is
to  be  paid  on  a  monthly  basis  through  January  2007.

STOCK-BASED COMPENSATION

Effective  January  1,  2006,  Clean  Diesel  adopted  Statement  of  Financial
Accounting  Standards  No.  123  (Revised  2004),  Share Based Payment (SFAS No.
123R),  which  requires a public entity to measure the cost of employee, officer
and  director  services received in exchanged for an award of equity instruments
based  on  the grant-date fair value of the award.  SFAS No. 123R supersedes the
Company's  previous  accounting  under  SFAS No. 123, accounting for Stock-Based
Compensation  (SFAS  No.  123),  which permitted the Company to account for such
compensation  under  Accounting  Principles Board Opinion No. 25, Accounting for
Stock  Issued  to  Employees  (APB No. 25).  Pursuant to APB No. 25, and related
interpretations, no compensation cost had been recognized in connection with the
issuance  of  stock  options,  as  all options granted under the Company's stock
option  plan  had an exercise price equal to or greater than the market value of
the  underlying  common  stock  on  the  date  of  the  grant.

The  Company  adopted  SFAS  No.  123R using the modified prospective transition
method,  which  requires  that  compensation  cost be recorded as earned for all
unvested  stock options outstanding at the beginning of the first fiscal year of
adoption  of  SFAS  No.  123R  based upon the grant date fair value estimated in
accordance  with  the  original  provisions of SFAS No. 123 and for compensation
cost  for  all  share-based  payments  granted  or  modified  subsequent  to the
adoption,  based  on  fair  value estimated in accordance with the provisions of
SFAS  No.  123R.  The Company's Financial Statements as of and for the three and
nine  months  ended  September 30, 2006 reflect the impact of SFAS No. 123R.  In
accordance  with  the  modified  prospective  transition  method,  the Company's
Financial Statements for prior periods have not been restated to reflect, and do
not  include,  the  impact  of  SFAS  No.  123R.  In  the  three  and


                                     -8-
<PAGE>
nine  months  ended  September  30,  2006,  Clean  Diesel  recorded  share-based
compensation  for  options attributable to employees and officers of $49,000 and
$155,000,  or  $0.00  and $0.01 per share which is included in the Company's net
loss  for  the  respective  periods.

Clean Diesel has a 1994 stock option plan approved by shareholders for officers,
directors,  key  employees  of  the  Company,  and  consultants  to the Company.
Participants  are  eligible  to  receive  incentive  and/or  nonqualified  stock
options.  The  stock  option  plan  allows for total options granted to be up to
17.5%  of  outstanding  common shares.  The stock option plan is administered by
the  Compensation  Committee  of  the  Board  of  Directors.  The  selection  of
participants,  grant  of  options,  determination  of price and other conditions
relating to the exercise of options are determined by the Board of Directors and
on  the  recommendation  of  its  Compensation  Committee,  and  administered in
accordance  with  the  1994  stock  option  plan.

Both  incentive  stock  options  and non-qualified options granted to employees,
officers  and directors under this plan are exercisable for a period of up to 10
years  from  the  date  of grant at an exercise price which is not less than the
fair  market  value  of  the common stock on the date of the grant.  The options
typically  vest  one-third  on  grant date and one-third on the first and second
grant  anniversary  dates  except  for Non-Executive Directors for which options
fully  vest  upon  granting.

A summary of the Company's stock option plans activity as of September 30, 2006,
and  changes  during  the  nine  months  then  ended  is  as  follows:

<TABLE>
<CAPTION>
                                                                   Weighted
                                                     Weighted       average
                                                     average       remaining    Aggregate
                                                     exercise     contractual   intrinsic
                                         Shares       price      term (years)    value
                                       ----------  ------------  -------------  ----------
<S>                                    <C>         <C>           <C>            <C>
    Outstanding, January 1, 2006        3,245,936  $       2.06
        Granted                                --           N/A
        Exercised                          15,000          0.90
        Forfeited                          47,167          2.00
        Expired                             5,000          5.63
                                       ----------  ------------
    Outstanding and expected to vest,
      September 30, 2006                3,178,769  $       2.06            7.0  $  602,000
                                       ==========  ============  =============  ==========

    Exercisable, September 30, 2006     2,867,770  $       2.16            6.1  $  409,000
                                       ==========  ============  =============  ==========
</TABLE>

The  Company  estimates  the  fair  value of stock options using a Black-Scholes
valuation model, consistent with the provisions of SFAS No. 123R, Securities and
Exchange  Commission  (SEC)  Staff Accounting Bulletin No. 107 and the Company's
prior  period pro forma disclosures of net earnings, including the fair value of
stock-based compensation.  Key input assumptions used to estimate the fair value
of  stock  options  include  the  expected  term  until  exercise of the option,
expected  volatility of the Company's stock, the risk free interest rate, option
forfeiture  rates,  and  dividends, if any.  The expected term of the options is
based  on  a  historical  weighted  average  of exercised options.  The expected
volatility  is  derived from the historical volatility of the Company's stock on
the  UK London Stock Exchange AIM listing and the US Over the Counter market for
a  period  that matches the expected term of the option.  The risk-free interest
rate  is  the  yield  from a treasury bond or note corresponding to the expected
term  of  the  option.  Option  forfeiture  rates  are  based  on  the Company's
historical  forfeiture  rates.  The  Company has not paid dividends and does not
expect  to  pay  dividends  in  the  future.

Compensation costs for stock options with graded vesting are recognized over the
vesting  period.  As  of  September  30,  2006,  there was $151,000 unrecognized
compensation  costs  related to granted stock options.  These costs are expected
to  be  recognized  over  a  weighted  average  period  of  1.0  years.

No  options  have  been  granted  in 2006.  The weighted-average grant-date fair
value  of options granted for the three and nine months ended September 30, 2005
was  $1.05  and $1.08, respectively.  The total intrinsic value of stock options
exercised  for  the  three  and  nine months ended September 30, 2006 was $0 and
$3,000,  respectively.  For  the  three and nine month period of 2005, the total
intrinsic  value  of  stock  options  exercised was $0 and $0, respectively.  In
March  2005, the Company accelerated vesting of 363,000 options with fair market
value  of  $498,000  in  response  to  the  issuance  by  FASB of SFAS No. 123R.


                                     -9-
<PAGE>
The  fair  value of each option grant in 2005 was estimated on the date of grant
using  the  Black-Scholes  options-pricing  model  with  the  following weighted
average  assumptions:

<TABLE>
<CAPTION>
                                           Third Quarter   Year To Date
                                           --------------  -------------
<S>                                        <C>             <C>
    Expected volatility                            106.5%         105.0%
    Weighted average expected volatility           106.5%         105.0%
    Expected dividends                               N/A            N/A
    Expected term (in years)                         4.3            4.3
    Risk-free interest rates                        4.56%           4.3%
</TABLE>

SFAS  No.  123  required  disclosure  of net income, on a pro forma basis, as if
expense  treatment  had  been  applied.  Had  the  Company  elected to recognize
compensation  expense  for  the  stock  option  plan, consistent with the method
prescribed  by  SFAS  No.  123R, the Company's net loss for the previous periods
presented  would  have  changed  to  the  pro  forma  amounts  as  follows:

<TABLE>
<CAPTION>
                                                                      Three Months Ended       Year-To-Date
                                                                      September 30, 2005    September 30, 2005
                                                                     --------------------  --------------------
<S>                                                                  <C>                   <C>

                                                                               (Amounts in thousands,
                                                                               except per share data)

  Net loss                                                           $            (1,489)  $            (3,966)

      Deduct:  Total stock based employee compensation expense
        Under fair value method for all awards, determined
        Net of related tax effects                                                   (61)                 (678)
                                                                     --------------------  --------------------

      Pro forma net loss                                             $            (1,550)  $            (4,644)
                                                                     ====================  ====================

          Basic and diluted net loss per common share - as reported  $             (0.09)  $             (0.23)
          Basic and diluted net loss per common share - pro forma    $             (0.09)  $             (0.27)
</TABLE>

BASIC AND DILUTED LOSS PER COMMON SHARE

Basic  and diluted loss per share is calculated in accordance with SFAS No. 128,
"Earnings Per Share."   Basic loss per share is computed by dividing net loss by
the  weighted-average  shares  outstanding during the reporting period.  Diluted
loss  per share is computed similar to basic earnings per share, except that the
weighted-average  shares  outstanding are increased to include additional shares
from  the assumed exercise of stock options and warrants, if dilutive, using the
treasury stock method.  CDT's computation of diluted net loss per share does not
include  common  share  equivalents  associated  with  3,179,000  and  2,823,387
options,  respectively,  and  507,000 and 507,000 warrants, respectively for the
2006  and  2005  periods,  as  the  result  would  be  anti-dilutive.

STOCKHOLDERS'  EQUITY

Pursuant  to  a  Regulation  S  exemption with respect to an offshore placement,
Clean  Diesel  Technologies  sold,  effective  November  11, 2005, 8.174 million
shares of its common stock. The price of the common stock was 40 pence (GBP) per
share  (approximately  $0.704  per  share).  The  proceeds  of  the common stock
issuance,  was  $5.5  million  (net  of  $232,000  in  expenses).

In  addition, Clean Diesel Technologies received subscriptions for an additional
$487,500  (net  of $12,500 in expenses) related to the November 11th issuance of
common  stock for 0.7 million shares of common stock.  The $487,500 was received
in  the  first  quarter  2006.

NOTE 3:  RELATED PARTY TRANSACTIONS

The  Company  has  a  Management  and  Services  Agreement  with Fuel Tech.  The
agreement  requires  CDT  to  reimburse  Fuel  Tech for management, services and
administrative  expenses  incurred on our behalf.  The Company has agreed to pay
Fuel  Tech  a  fee  equal  to  an  additional  3% of the costs paid on behalf of
administration  (approximately  $500  for  the


                                      -10-
<PAGE>
quarter  and  $1,500 year to date).  Currently, and for the last three years CDT
has  reimbursed  Fuel  Tech  for  the  expenses  associated  with  one Fuel Tech
officer/director  who  also  serves  as an officer/director of CDT.  The Company
believes  the charges under the Management and Services Agreement are reasonable
and  fair.  The  Management  and  Services  Agreement may be cancelled by either
party  by notifying the other in writing of the cancellation on or before May 15
in  any  year.

NOTE  4:  COMMITMENTS

Clean  Diesel  Technologies  leases  3,925  square feet of administrative office
space at 300 Atlantic Street, Stamford, Connecticut. The five year lease through
March  2009  has  an  annual  cost  of  approximately  $125,000, including rent,
utilities  and  parking.

CDT  leases  400  square  feet  of  administrative space at 23 Bourne House, 475
Godstone Road in Surrey, England.  The two and half year lease through September
2007  has  an  annual  cost  of  approximately  $33,000  including utilities and
communication  services.

CDT  has  signed  a four year lease (through July 2008) for 2,750 square feet of
warehouse  space  in Milford, Connecticut.  Annual rent including utilities will
be  approximately  $21,000.

Effective  October  28,  1994, Fuel Tech granted two licenses to the Company for
all  patents  and  rights associated with its platinum fuel catalyst technology.
Effective  November  24, 1997, the licenses were canceled and Fuel Tech assigned
to the Company all such patents and rights on terms substantially similar to the
licenses.  In  exchange for the assignment, the Company pays Fuel Tech a royalty
of  2.5%  of  its annual gross revenue from sales of the platinum fuel catalysts
commencing  in  1998.  The  royalty  obligation expires in 2008. The Company may
terminate  the  royalty  obligation  to  Fuel Tech by payment of $3.3 million in
2006,  and  declining annually to $2.2 million in 2007 and $1.1 million in 2008.
The  Company as assignee and owner is responsible for maintaining the technology
at  its own expense.  Royalty expense was $4,031 and $2,307 for the three months
ended  September 30, 2006 and 2005, respectively, and $11,419 and $6,970 for the
nine  month period ended September 30, 2006 and 2005, respectively.  The royalty
expense  payable  to  Fuel  Tech  at  September 30, 2006 and 2005 is $11,419 and
$6,970,  respectively.

NOTE  5:  CONCENTRATION

For  the  quarters  ended  September 30, 2006 and 2005 and year to date 2006 and
2005, Clean Diesel's largest customers as a percentage of sales were as follows:

<TABLE>
<CAPTION>
                  Third Quarter     Year To Date
    REVENUE:      2006     2005     2006     2005
                --------  -------  -------  -------
<S>             <C>       <C>      <C>      <C>
    Customer A       10%      19%      13%      13%
    Customer B       12%      33%       *       11%
    Customer C       17%       *       20%       *
    Customer D       13%       *        *        *
</TABLE>

*  Represents  less than 10% revenue for that customer in the applicable period.
There  were  no  other customers that represented 10% or more of revenue for the
shown  periods.

In addition to the revenue concentration, at September 30, 2006 Clean Diesel has
2 customers that represent 29% of its gross accounts receivable balance.  One of
the  customers  is  the same as listed in the revenue concentration chart above.

NOTE  6:  ISSUANCE  OF  STOCK  TO  DIRECTOR  FOR  DIRECTOR'S  FEES

On  June  15, 2006 Clean Diesel issued 62,194 shares of common stock for payment
of  $94,250  of  accrued  2005  non-executive  directors'  fees  due  to  three
non-executive directors.  Under an agreement with directors the number of shares
issuable  were  determined quarterly as earned, based on the average of the high
and  low  price  of  the  stock  each  quarter.


                                      -11-
<PAGE>
NOTE  7:  NEW  ACCOUNTING  PRONOUNCEMENT

In  June  2006,  the  Financial  Accounting  Standards  Board (FASB) issued FASB
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes  - an
interpretation  of  FASB  Statement  No  109"  (FIN  48),  which  prescribes  a
recognition  threshold  and  measurement  attribute  for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax  return.  FIN  48  also  provides guidance on derecognition, classification,
interest  and  penalties,  accounting  in  interim  periods,  disclosures  and
transition.  FIN  48  is effective for fiscal years beginning after December 15,
2006.  We  do not expect the adoption of FIN 48 to have a material impact on our
financial  reporting  and  we  are  currently evaluating the impact, if any, the
adoption  of  FIN  48  will  have  on  our  disclosure  requirements.


                        CLEAN DIESEL TECHNOLOGIES, INC.


ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS

Statements  in  this  Form  10-Q  that  are  not  historical  facts,  so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the  Private  Securities Litigation Reform Act of 1995.  Investors are cautioned
that  all  forward-looking statements involve risks and uncertainties, including
those  detailed  in  the  Company's  filings  with  the  Securities and Exchange
Commission.  See  "Risk Factors of the Business" in Item 1, "Business," and also
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of  Operations"  in  the Company's Annual Report on Form 10-K for the year ended
December  31,  2005.

RECENT DEVELOPMENTS

Clean  Diesel's markets include alternative energy and emission reduction.  With
rising  oil  prices  and diminishing supplies as well as pending global emission
reduction  requirements, the demand for Clean Diesel's technologies continues to
increase.  Recently, Clean Diesel has gained substantial interest and acceptance
with  original  equipment  manufacturers  and  Tier  one suppliers.  Many of the
leading  manufacturers  or  suppliers  are now testing or negotiating with Clean
Diesel  for  access  to  its  technologies.  Clean Diesel has also added several
international distributors for its Platinum Plus FBC and made arrangements for a
UK  based  toll blending operation to be utilized for production of the Platinum
Plus  FBC  into  the  UK  and  continental  Europe.

RESULTS OF OPERATIONS

2006 VERSUS 2005

Revenues  and  cost  of  revenue  in the third quarter of 2006 were $339,000 and
$206,000,  respectively, versus $166,000 and $102,000, respectively for the 2005
third  quarter.  For  the  nine months to date, 2006 revenue and cost of revenue
were  $887,000  and  $478,000,  respectively  versus  $626,000  and  $373,000,
respectively  for  the  same nine month period in 2005.  Revenues consist of the
following:

<TABLE>
<CAPTION>
                                   Third Quarter      Year To Date
    (in thousands)                 2006     2005     2006     2005
                                 --------  -------  -------  -------
<S>                              <C>       <C>      <C>      <C>
    REVENUE:
    Additive                     $    161  $    97  $   457  $   283
    Hardware                           74       56      191      314
    License, royalty and other        104       13      239       29
                                 --------  -------  -------  -------

    Total revenue                $    339  $   166  $   887  $   626
</TABLE>

In  the  foregoing  table "Additive" includes the Platinum Plus FBC products and
concentrate;  "Hardware" includes the EPA verified Purifier System, EPA verified
wire  mesh  filter,  ARIS  injectors  and  dosing  systems.


                                      -12-
<PAGE>
Additive  revenue has increased as a result of the addition of new customers and
expanding sales in several niche markets including mining and off road vehicles.
The  decrease in hardware sales on a 9 month year-to-date basis is primarily the
result  of  the timing of ARIS injector sales and the 2005 State of Pennsylvania
grant  project.

License,  royalty  and other revenue increased as a result of the royalty income
recognized  for  the ARIS injector, and a consulting and market analysis project
performed  by  Clean  Diesel  for  a  new  International  customer.

Clean  Diesel's  strategy  is  to  license the ARIS 2000 NOx reduction system to
other  companies for an up-front fee for the technology and information transfer
and  a  separate  on-going  royalty  per  unit  payment.  CDT  currently  has an
exclusive  license  agreement  for  both stationary and mobile ARIS applications
with  DENOX,  Inc.  (transferred  from  Mitsui  Ltd)  for  Japan.  CDT  has  a
non-exclusive  license  for  both stationary and mobile ARIS applications in the
United  States with Combustion Components Associates of Monroe, Connecticut. CDT
previously  had  an ARIS stationary license agreement for North America with the
RJM  Corporation  of  Norwalk, Connecticut, but as of August 2004 RJM was out of
business  and the ARIS license reverted back to CDT.  CDT believes that the ARIS
2000  system  can  most  effectively be commercialized through licensing several
companies  with  a related business in these markets.  Clean Diesel Technologies
is  actively  seeking  additional  ARIS licensees for both mobile and stationary
applications  in  the  US,  Europe  and  Asia.

General  and  administrative  expenses  decreased  in  the third quarter 2006 to
$1,157,000 from $1,260,000 in 2005 and year to date 2006 increased to $3,872,000
from  $3,635,000  in  2005  as  summarized  in  the  following  table:

<TABLE>
<CAPTION>
                                                  Third Quarter      Year To Date
(in thousands)                                    2006     2005     2006     2005
                                                --------  -------  -------  -------
<S>                                             <C>       <C>      <C>      <C>
    Compensation and benefits                   $    748  $   809  $ 2,644  $ 2,363
    Occupancy                                         98      128      308      369
    Professional                                     179      241      611      639
    Other                                            132       82      309      264
                                                --------  -------  -------  -------

    Total general and administrative expenses   $  1,157  $ 1,260  $ 3,872  $ 3,635
</TABLE>

Included  in  the 2006 year to date compensation and benefit expense is $357,475
of  severance charges related to the departure of James Valentine, President and
Chief  Operating  Officer.  Clean  Diesel  announced  in  January  2006 that Mr.
Valentine  had  been  "released  from employment and resigned as director of the
company."  The  balance  sheet  at September 30, 2006 includes accrued severance
charges  of  $105,000 representing salary and benefit costs for the remainder of
the one year employment contract between Clean Diesel and Mr. Valentine which is
to  be  paid  on  a  monthly  basis  through  January  2007.

Compensation and benefit expense decreased slightly in the third quarter 2006 as
the  savings from the departure of the President and Chief Operating Officer was
mostly  offset  by  the  salary  and benefit expense of the new Chief Technology
Officer and the recognition of $49,000 in non-cash compensation expense relating
to  stock  options  granted prior to January 1, 2006 as required under Financial
Accounting  Standards  123R.  Other  expense  increased  as  a  result  of Clean
Diesel's  sales  and  marketing  activities  including  commissions.

For  the  first  nine  months  year  to  date  compensation  and benefit expense
increased  as  a  result  of recognition of severance expense, the addition of a
chief  technology  officer  in  July  2005  and  the  recognition of $155,000 in
non-cash compensation expense relating to stock options granted prior to January
1,  2006  as  required under Financial Accounting Standards 123R.  Other expense
increased as a result of Clean Diesel's sales and marketing activities including
commissions.

Research  and development expense decreased in the third quarter 2006 to $52,000
from  $222,000  in  2005.  For  the  nine  months  year  to  date,  research and
development  expenses  increased  to $447,000 in 2006 from $399,000 in 2005. The
increase  in  research  and  development in 2006 is due to additional laboratory
testing  on the CWMF technology acquired from Mitsui and a new bio-fuel additive
formulation.

Patent  amortization  and  other costs decreased to $53,000 in the third quarter
2006  versus  $61,000  in  2005.  For  the  nine  months  to date in 2006 patent
amortization  and  other costs increased to $146,000 from $125,000 in 2005.  The
2006


                                      -13-
<PAGE>
increase  is  related  to  higher  amortization  related  to  prior  period
capitalization  and  patent  legal  fees  related  to  recently granted European
patents.

Interest  income  increased  to  $8,000 in the third quarter 2006 from $2,000 in
2005 and for the nine months year to date to $56,000 from $16,000 in 2005 due to
higher  rates  of  return  and  the higher amount of invested funds in the third
quarter  and first nine months of 2006 related to the November 2005 fundraising.

Inventory  increased to $440,000 at September 30, 2006 from $285,000 at December
31,  2005 as Clean Diesel increased finished Platinum Plus FBC and wire mesh for
its  European  operations.  Platinum  and  platinum concentrate has increased to
support  this  growing  demand.  Clean  Diesel  also  increased the inventory of
onboard  dosing  systems  to  support Platinum Plus FBC sales in both the US and
Europe.

Capitalized  patents excluding accumulated depreciation increased to $749,000 at
September  30, 2006 from $665,000 at December 31, 2005.  As a technology company
Clean  Diesel is continuously filing patents.  Clean Diesel also had several key
European patents grant recently and added several pending patents related to the
wire  mesh  filter  technology  which  was  acquired  from  Mitsui  in  2005.

LIQUIDITY  AND  SOURCES  OF  CAPITAL

Prior to 2000, the Company was primarily engaged in research and development and
has  incurred  losses  since  inception  aggregating  $38,679,000 (excluding the
effect  of  the  non-cash preferred stock dividends on preferred shares prior to
conversion  to common).  Clean Diesel is likely to incur losses through at least
the  next  twelve  months  as  it further pursues its commercialization efforts.
Although  the  Company  started  selling  limited  quantities  of  Platinum Plus
additive  and  the  verified  Purifier system and generating some ARIS licensing
fees  and  royalties,  operating  revenue to date has been insufficient to cover
operating  expenses and the Company continues to be dependent upon proceeds from
fundraising  to  finance  its  working  capital  requirements.

For  the nine months ended September 30, 2006 and 2005, the Company used cash of
$3,650,000  and  $3,507,000,  respectively,  in  operating  activities.

At  September  30,  2006  and  December  31, 2005, the Company had cash and cash
equivalents  of  $1,252,000  and $4,513,000, respectively.  The decrease in cash
and  cash  equivalents  in  2006 was the result of limited revenues and on-going
operating  costs.  The Company anticipates incurring additional losses into 2007
as  it  further  pursues  its  commercialization  efforts.

Pursuant  to  a  Regulation  S  exemption with respect to an offshore placement,
Clean  Diesel  Technologies  sold,  effective  November  11, 2005, 8.174 million
shares of its common stock. The price of the common stock was 40 pence (GBP) per
share  (approximately  $0.704  per  share).  The  proceeds  of  the common stock
issuance,  was  $5.5  million  (net  of  $232,000  in  expenses).

In  addition, Clean Diesel Technologies received subscriptions for an additional
$487,500  (net  of  $12,500 in expense) related to the November 11th fundraising
above for 0.7 million shares of common stock.  The $487,500 had been received as
of  March  3,  2006.

Clean Diesel has been unable to generate positive cash flows from its operations
in  the  past.  The  Company  does not have any credit facilities available with
financial  institutions  or  other  third  parties.  If the Company is unable to
generate cash flow from operations in the future, Clean Diesel will be dependent
upon external sources of best-efforts financing, of which there are presently no
firm  commitments  or  arrangements although management is actively seeking such
financing  .  Based  on the current operating plan, management believes that the
cash  balance  as of September 30, 2006 of $1,252,000 will be sufficient to meet
the  cash needs into the first quarter of 2007.  In the future, unless operating
revenues  are  sufficient  to  meet operating expenses, the Company will need to
access  capital  markets to fund operations by incurring indebtedness or issuing
equity  securities.  The  Company  can  provide  no  assurance  that  it will be
successful  in  any  future  financing  effort  to  obtain the necessary working
capital  to  support operations or if such financing is available, it will be on
acceptable  terms.  If  management  is  unable to obtain the necessary financing
from  external  sources,  the Company will need to manage any cash shortfalls by
taking  measures  which  may  include  deferring  or  reducing  the  scope  of
commercialization  efforts,  reducing  costs and overhead expenses, or otherwise
curtailing  operations, or obtaining funds by a disposition of assets or through
arrangements  with  others that may require Clean Diesel to relinquish rights to
certain  of  its  technologies, or to license the rights to such technologies on
terms that are less favorable to Clean Diesel than might otherwise be available.


                                      -14-
<PAGE>
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In  the opinion of management, with the exception of exposure to fluctuations in
the  cost of platinum and the British Sterling exchange rate, the Company is not
subject  to  any  significant  market  risk  exposure.

The  Company  generally  receives  most  income  in United States dollars. Clean
Diesel  Technologies  maintains  a  UK  bank account and typically makes several
payments  monthly  in  various  foreign  currencies for patent expenses, product
tests  and  registration,  local  marketing  and  promotion,  consultants  and
employees.  In  addition,  Clean  Diesel's UK branch office receives payments in
British  Sterling.

ITEM 4.     CONTROLS AND PROCEDURES

The  Company  maintains disclosure controls and procedures and internal controls
designed  to  ensure  that information required to be disclosed in the Company's
filings  under  the  Securities  Exchange  Act  of  1934 is recorded, processed,
summarized  and reported within the time periods specified in the Securities and
Exchange  Commission's  rules  and  forms.  The  Company's  management, with the
participation  of  its principal executive and financial officers, has evaluated
the  effectiveness of the Company's disclosure controls and procedures as of the
end  of  the period covered by this Quarterly Report on form 10Q.  The Company's
principal  executive  and  financial  officers  have  concluded,  based  on such
evaluation,  that such disclosure controls and procedures were effective for the
purpose  for  which  they  were  designed  as  of  the  end  of  such  period.

There  was  no change in the Company's internal control over financial reporting
that  was identified in connection with such evaluation that occurred during the
period  covered  by  this  Quarterly  Report  on  form  10Q  that has materially
affected,  or  is reasonably likely to materially affect, the Company's internal
control  over  financial  reporting.


                                      -15-
<PAGE>
PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings
            None

Item 1A     Risk Factors
            None

Item 2.     Unregistered Sales of Securities and Use of Proceeds
            None

Item 3.     Defaults upon Senior Securities
            None

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

Item 5.     Other Information
            None

Item 6.     Exhibits
            Exhibits 31.1 and 31.2 are filed herewith

            Exhibit 32 is furnished herewith


                                      -16-
<PAGE>
                         CLEAN DIESEL TECHNOLOGIES, INC.
                           SIGNATURES & CERTIFICATIONS


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.


Date:  November 13, 2006               By:  /s/Bernhard Steiner
                                            ------------------------------------
                                            Bernhard Steiner
                                            Director, President and
                                            Chief Executive Officer


Date:  November 13, 2006               By:  /s/David W. Whitwell
                                            ------------------------------------
                                            David W. Whitwell
                                            Chief Financial Officer,
                                            Senior Vice President and Treasurer


                                      -17-