SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549
                         __________________________________

                                      FORM 10-K

            (Mark One)
            [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
            For the Fiscal Year Ended December 31, 1997

                                         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 No. 1-12714

                                      OSMONICS, INC.

                  (Exact name of registrant as specified in its charter)

                      Minnesota                            41-0955959

             (State or other jurisdiction          (I.R.S. Employer
                 of incorporation or               Identification No.)
                    organization)

            5951 Clearwater Drive, Minnetonka, Minnesota         55343

            (Address of principal executive offices)             (Zip Code)

                                     (612) 933-2277

                                (Registrant's telephone
                                        number)

                 Securities registered pursuant to Section 12(b) of the Act:

            Common Shares, par value
            $0.01 per share                       New York Stock Exchange

                (Title of each class)         (Name of each exchange on which
                                              registered)

                 Securities registered pursuant to Section 12(g) of the Act:

                                          None.

                 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 by check mark if disclosure of delinquent
            filers pursuant to Item 405 of Regulation S-K is not
            contained herein, and will not be contained, to the best of
            Registrant's knowledge, in definitive proxy or information
            statements incorporated by reference in Part III of this
            Form 10-K or any amendment to this form 10-K.  [X].

                 As of March 4, 1998, 13,953,584 Common Shares were
            outstanding.  The aggregate market value of the Common
            Shares held by non-affiliates of the Registrant on such date
            (based upon the closing price of such shares on the New York
            Stock Exchange on March 4, 1998) was $228,489,938.


                      DOCUMENTS INCORPORATED BY REFERENCE

                 Portions of the Annual Report to Shareholders for the
            fiscal year ended December 31, 1997 (the "Annual Report to
            Shareholders"), are incorporated by reference into Parts II
            and IV.  Portions of the definitive Proxy Statement for the
            Annual Meeting of Shareholders to be held on May 13, 1998
            (the "Proxy Statement"), and to be filed within 120 days
            after the Registrant's fiscal year ended December 31, 1997,
            are incorporated by reference into Part III.

                                     PART I

            ITEM 1.  BUSINESS

                 The following discussion contains certain information
            and other forward-looking statements that involve a number
            of risks and uncertainties.  The actual results of Osmonics
            could differ materially from the Company's historical
            results of operations and those discussed in the forward-
            looking statements.

                 Osmonics, Inc. and its wholly-owned subsidiaries (the
            "Company") design, manufacture and market machines, systems
            and components used in the processing and handling of
            fluids.  The Company was founded in 1969 and manufactures
            replaceable, semi-permeable membranes and other filter media
            for use in fluid separation and filtration.  The Company's
            processing equipment employs crossflow filtration (including
            reverse osmosis, nanofiltration, ultrafiltration and
            microfiltration), normal filtration (including
            microfiltration and particle filtration), coalescing
            filtration, ion exchange, clarification, chromatography,
            ozonation and distillation.  The Company's fluid handling
            equipment includes centrifugal, diaphragm and bellows pumps;
            electronic controllers to operate precision valves for water
            conditioning; flow control and measuring devices and
            instrumentation; and specialty holders and devices for
            retaining its membranes and filter media.

                 Crossflow, normal and coalescing filtration are
            precision processes in which a semi-permeable membrane or
            other filter material separates a fluid's components.
            Separation is accomplished by applying pressure to a fluid
            in order to cause selective passage of some components of
            the fluid through the membrane or filter media.  Ion
            exchange and chromatography are quasi-filtration processes
            in which specialized plastic beads are used to selectively
            remove ionized or charged particles from a fluid.  The fluid
            is pressurized and passes through a bed of the plastic beads
            in a normal filtration mode.  Distillation is the
            condensation of steam from boiling water to produce
            ultrapure water.  Ozone generation equipment uses
            electricity to develop a corona discharge which produces
            ozone, a strong oxidant used in the purification of water
            and other fluids.

                 The Company's processing products are used in
            fractionation, preferential separation, conditioning and
            purification in connection with such processes as
            purification of water and industrial solutions, dewatering
            and recycling of commercial and industrial fluids, pollution
            control and seawater desalting.  The Company's principal
            domestic and international markets, from which it derives
            more than 50% of its sales, include the electronics, potable
            water, health care, biotechnology, food and beverage,
            chemical processing and power generation industries.

                 Filtration processes cover a broad spectrum ranging
            from those which separate discrete molecules and ions to
            those which separate particles visible to the naked eye.
            Historically, the Company specialized in products utilizing
            crossflow filtration processes designed to separate
            particles in the molecular range.  Through acquisitions and
            internal product developments, the Company now has a full
            line of filtration products including depth cartridge
            filters for particle filtration and pleated membrane
            cartridge filters for microfiltration.  The filtration media
            and membrane is produced primarily from polymers; however,
            inorganic membranes and filters of metal and ceramic are
            also manufactured.  In addition, the Company manufactures
            housings to contain the filters.  The crossflow filter
            membrane elements, and the microfilter and depth filter
            cartridges are replaceable while the housings are a
            permanent fixture in the fluid processing system.

                 To provide a complete line of products for the
            production of pure water, the Company manufactures
            distillation equipment, both single-effect and more energy
            efficient multi-effect.  In addition, deionization and
            softening equipment in both laboratory size and large scale
            is manufactured in multiple locations.

                 In June 1989, the Company acquired Ozone Research &
            Equipment Corporation of Phoenix, Arizona.  Ozone Research
            was founded in 1957 and is a pioneer in the manufacture of
            ozone generation equipment for the purification of water and
            the testing of elastomeric materials.

                 In November 1989, the Company acquired certain assets
            for the manufacture and sale of MACE flow control and
            pumping products to increase its fluid handling offerings.
            MACE products are made from Teflon PTFE, the most chemically
            stable polymer available, and are used to handle ultrapure
            and aggressive chemicals.

                 In December 1990, the Company acquired certain assets
            of the FASTEK Division of Eastman Kodak for the production
            of reverse osmosis membrane, home reverse osmosis membrane
            elements, a rolled filter product, and a blown microfiber
            filter cartridge product.  This Syracuse, New York facility
            and manufacturing equipment provides the Company with added
            capacity and capability and gives the Company three sites
            for manufacturing membrane and membrane elements.

                 In October 1993, the Company acquired Autotrol
            Corporation through a pooling-of-interests, stock-for-stock
            transaction.  Autotrol was founded in 1962 and is a leader
            in the manufacture of controllers for water softening and
            filtration equipment.  In addition, Autotrol manufactures
            other fluid control and measuring devices such as a
            totalizing flow meter and dosing system to assure proper
            treatment of cooling tower water.  Most of Autotrol's
            products are sold to OEM's who then use them as a component
            in a water conditioning device which is then sold to
            consumers.

                 In November 1994, the Company acquired substantially
            all of the assets of Lakewood Instruments of Phoenix,
            Arizona.  This acquisition adds a line of instruments,
            sensors and analyzers used in the measurement of fluid
            characteristics in the chemical water treatment and pure
            water industries.

                 In October 1995, the Company acquired the assets and
            operations of Western Filter Company, Denver, Colorado, an
            important supplier to the beverage and bottled water
            industry for over 50 years.  Western Filter has extensive
            experience in providing the beverage market with
            conventional water treatment technologies and membrane water
            treatment.  Western Filter also has experience in
            coagulation clarification pretreatment technologies.  These
            technologies will be utilized with Osmonics' existing
            distribution channels, allowing the Company to expand
            capability in the international markets where conventional
            water treatment is required, as well as complement municipal
            sales in the United States where ozone disinfection is
            becoming accepted.

                 In July 1996, the Company acquired Desalination
            Systems, Inc. ("Desal") through a pooling-of-interests,
            stock-for-stock transaction.  Desal manufactures crossflow
            filtration membrane and membrane elements.  Desal has
            manufacturing facilities in Vista, California, and markets
            its products world-wide.  Desal's products extend the range
            of membranes and membrane elements previously offered by the
            Company.  The acquisition also extends the Company's
            distribution network for such products.

                 In February 1997, the Company acquired AquaMatic, Inc.
            of Rockford, Illinois.  AquaMatic, started in 1930, offers a
            line of specialty valves and controllers for the water
            conditioning market, which will be sold through existing
            Osmonics distribution channels.

                 In December 1997, the Company acquired Purifications
            Products Company ("PPC") of San Marcos, California.  PPC
            manufactures a line of reverse osmosis membrane elements and
            related products for purifying home drinking water and
            producing high-quality water for other applications.  In
            addition, PPC has a line of Silt Density Index instruments
            and a line of UV sterilization products.  These products
            will be sold through existing Osmonics distribution
            channels.

                 In February 1998, the Company acquired Micron
            Separations, Inc. ("MSI") of Westborough, Massachusetts.
            MSI, in business for 16 years, develops, manufactures and
            markets microfilter membrane and membrane products for
            diagnostic, laboratory and industrial use.  These products
            will expand the Company's range of nylon and cellulosic
            membrane applications.  The products will be sold through
            existing Osmonics distribution channels.

                 In March 1998, the Company signed a definitive
            agreement, to acquire Membrex Corp. of Fairfield, New
            Jersey.  The acquisition is subject to Membrex shareholder
            approval.  The acquisition of Membrex would give the Company
            the most hydrophilic UF membrane in the market, which is
            used to separate oil from water in a variety of
            applications, including biotechnology, laboratory and
            chemical processes.  Membrex also has a patented machine
            using its UF membrane which will separate oil from water for
            use in parts cleaning and other industrial and commercial
            applications.  Some products will be sold through our
            exclusive agreement with Safety-Kleen Corp. and the
            remainder through existing Osmonics distribution channels.

                 The Company focuses the marketing of its products
            through three domestic and international sales groups:

               1.  Large equipment and systems.

               2.  Components and product sales.

               3.  Catalog and telephone sales.

            These sales groups are supported by application engineers
            and market support personnel.

            Products

                 Membranes:  The Company markets polymer membranes for
            crossflow applications sold in replaceable elements.  Most
            membranes are produced in a spiral-wound configuration
            ranging in diameter from two to twelve inches and in length
            from twelve to sixty inches.

                 Membrane elements are typically replaced every 6 to 60
            months, depending upon the severity of the application.  The
            Company manufactures the membrane material and membrane
            elements used in its own systems, and also manufactures
            membrane elements for other original equipment manufacturers
            (OEM's) who include them as component parts in their
            products.

                 The Company's membranes are used in many bioengineering
            processes such as the production of high fructose corn
            sugar, enzyme purification, and purification of
            pharmaceuticals produced by biological processes.  Other
            uses include water purification applications in
            hemodialysis, semiconductor manufacturing, production of
            pure water for beverages, production of ultrapure
            pharmaceutical and boiler feed water, industrial water
            purification and waste removal for pollution control
            compliance.  In addition, the Company sells its home reverse
            osmosis (HRO) membrane elements to OEM's who package them
            into systems for use in homes, offices and retail vending
            establishments to produce purified drinking water.  The
            Company is registered with the United States Food and Drug
            Administration for the manufacture and sale of certain
            membrane elements used in biological preparations.  The
            Company is registered with the U.S. FDA for the manufacture
            of Class II medical devices used to purify water for
            hemodialysis.

            The Company markets microfiltration normal flow membrane and
            the hardware for use in a variety of laboratory and medical
            diagnostic applications.  The Company manufactures nylon,
            cellulosic polysulfone, polycarbonate, and numerous other
            polymer-based microfiltration membrane as well as silver
            microfiltration membranes and ceramic microfilters.
            Numerous applications exist for the Company's microfilters
            because of unique features, including use in air monitoring
            and in laboratory procedures for cancer and other research.

                 Filters:  The Company markets replaceable depth
            cartridge filters, pleated cartridge filters, and rolled
            cartridge filters.  The depth cartridge filters consist of a
            matrix of thermally-bonded polypropylene blown microfibers.
             The structure of these fibers allows particles to be
            trapped throughout the depth of the cartridge filter rather
            than simply on its surface, enhancing the efficiency of the
            filtration process.  The pleated cartridge filters use
            either a specially processed sheet of blown polypropylene
            microfibers or microporous membranes and use surface
            filtration to act as a very selective filter.  Rolled
            cartridge filters use media similar to pleated filters in a
            semicrossflow configuration, for enhanced filtration in
            specialized applications.  Cartridge filters are
            manufactured in a range of pore sizes and particulate
            retention ratings.  As a result of retention of particles in
            the filters, cartridge filters are typically replaced at
            intervals of eight hours to four weeks.

                 The Company markets ceramic cartridge filters for
            microfiltration and particulate filtration.  The ceramic
            cartridge filters operate similar to the pleated cartridge
            filters in that particles are trapped on the surface.
            Ceramic cartridge filters are used to sterilize
            pharmaceutical solutions and are used in laboratory
            applications, where many analytic and diagnostic procedures
            require purification or sterilization.

                 The Company also markets separation elements and
            equipment used in coalescing filtration, a process distinct
            from crossflow and normal filtration, which separates
            different liquids based on their density and adsorption
            differences.  This process can reduce concentrations of
            contaminants of several percent to only a few parts per
            million.  Applications of coalescing filtration include
            removal of contaminants from compressed air and gas lines,
            dewatering of solvents and jet fuel, and removal of trace
            oil from waste water prior to disposal.

                 Ion Exchange and Chromatography Equipment:  The Company
            markets equipment using ion exchange technology.  Ion
            exchange plastic beads and selected polymer gels are
            utilized to preferentially adsorb ionized and charged
            material from a fluid stream.  After the ion exchange beads
            have adsorbed a certain amount of material, they must be
            regenerated, typically with acid or caustic, or in the case
            of chromatography with a selected fluid to strip off the
            adsorbed material.  The most used ion exchange process is
            for water softening where the ions of calcium and magnesium
            are replaced with sodium to reduce soap usage, improve
            boiler operation and improve cleaning.  The Company is a
            leader in the manufacture of the controllers and valves used
            to effect ion exchange.  Another ion exchange application is
            to polish ultrapure water for electronics manufacture and
            high pressure boiler feed.  Chromatography is primarily used
            to purify biotech fluids and food proteins.

                 Distillation Equipment:  The Company markets
            distillation and related water purification equipment used
            primarily in the laboratory and pharmaceutical industries.
            Distillation, which involves the condensation of steam from
            boiling water, was one of the first technologies used to
            purify water.  The Company's distillation product lines
            range from laboratory stills to elaborate 5000-gallon-per-
            hour multi-stage purifiers.

                 Ozonation Equipment:  The Company markets equipment to
            generate ozone from electricity using corona discharge.
            Ozone is becoming increasingly important as a bactericide
            and water purifier because it kills bacteria, virus and
            giardia cysts 10 to 300 times faster than chlorine.

                 Ozone is also effective in oxidizing trace organic
            materials in water which are precursors of the carcinogenic
            trihalomethanes.  Ozone can also be used to purify solvent-
            contaminated groundwater and is often used to de-color water
            and waste water.

                 In 1997, the Company announced a partnership with Fuji
            Electric Co., Ltd., Japan and Fuji Electric Corp. of America
            (Fuji) to manufacture high concentration ozone generators
            using proprietary Fuji technology and components.  This
            partnership will provide the Company a strong entry into the
            municipal water treatment market, as well as pulp and paper
            and other large-scale oxidation applications.  As part of
            the agreement, the Company has the rights to manufacture and
            sell such equipment world-wide except for Japan and Korea.

                 Pumps, Valves and Flow Control Devices:  The Company
            markets a line of multi-stage centrifugal pumps.  These
            pumps were developed by the Company to meet the need for
            dependable high pressure pumps and are available in 60
            standard sizes with flows ranging from 3 gallons per minute
            to 500 gallons per minute and pressure capabilities from 25
            pounds per square inch (psi) to 500 psi.  The pumps are
            capable of operating in series to obtain 1000 psi for
            seawater desalting and other high pressure applications.

                 The Company markets two types of chemical-resistant,
            air-operated pumps used in both the chemical and electronics
            industries.  These unique pumps are constructed of Teflon
            PTFE or polypropylene materials making them resistant to
            acids, caustics, solvents and numerous other aggressive
            chemicals.

                 The Company markets a dry chemical feeder system to
            sanitize well water and reduce iron and sulfur odors, and
            also markets the pellets used in the feeder.

                 The Company markets totalizing flow meters and
            electronic controllers made of corrosion resistant Noryl
            plastic, as well as a line of Teflon PTFE fluid control
            products including valves, fittings and flow meters used in
            the electronics, pharmaceutical and chemical industries.
            The PTFE is molded and machined into unique shapes to
            provide extremely chemical resistant high temperature parts.

                 The Company markets both analog and digital instruments
            for chemical water treatment and monitoring.The instruments
            are used to measure and control conductivity, pH, ORP,
            chlorine, specific ions, trihalomethanes (THM's) and
            solvents in water, such as trichloroethyleneThe instruments
            are capable of being used in local operating network (LON)
            communications and data acquisition.

                 Machines and Systems:  The crossflow and normal
            filtration machines manufactured by the Company are
            comprised of one or more membrane elements, cartridge
            filters, pumps, valves, controls, transformers, heat
            exchangers, pipes and a steel frame on which the components
            are mounted.  The size and number of membrane elements and
            filters can vary greatly.  Pumps, pipes and frames of
            various sizes can be combined and configured to accommodate
            the membrane elements or filters required for various fluid
            handling or separation tasks.

                 The systems sold by the Company are comprised of one or
            more machines or pieces of equipment designed and
            manufactured by the Company as well as ancillary equipment,
            such as additional pumps, heat exchangers and holding tanks.
            The type, size and number of machines and the ancillary
            equipment included in a system will vary with the nature and
            size of the fluid separation task.

                 The following table shows the percentage of net sales
            during the past five years attributable to the Company's
            fluid processing and handling equipment compared to its
            replaceable components:

                   Year Ended                  Replaceable
                   December 31   Equipment(1)  Components(2)
                      1997           46%            54%
                      1996           49%            51%
                      1995           48%            52%
                      1994           51%            49%
                      1993           49%            51%

                (1) Equipment includes: (i) pumps, control valves,
                instruments and machines sold separately, (ii) pumps,
                controls, instruments, valves, fittings, chemicals, and
                other ancillary equipment sold with systems and (iii)
                membrane elements, filter elements, ion exchange resin
                and filter cartridges sold with machines.

                (2) Replaceable components include only those membrane,
                coalescer and dielectric elements, cartridges,
                membranes, filters and other components sold by the
                Company as replacements for its machines, systems and
                products, or as replaceable components for products
                manufactured by others.  They do not include those
                components originally sold as parts of new machines or
                systems manufactured by the Company.  Sales of
                components and replacement parts provide the Company
                with a relatively stable and continuing source of
                revenue.

            Sales and Marketing

                 The Company markets its custom machines and systems
            through its direct sales force.  The Company's standard
            products are marketed to a network of independent
            distributors with the help of Company district managers.
            These distributors provide world-wide installation service
            and stocking of a wide range of the Company's standard
            products.  Some sales are made directly to certain of the
            Company's largest customers and to other manufacturers of
            filtration equipment and systems.

                 The Company's marketing activities include appearances
            at trade shows, direct mail campaigns, advertisements in
            professional and trade journals and appearances before
            professional organizations.  The Company participates with
            its customers in planning the systems in which its products
            are to be used, particularly if new applications are
            involved.  In some cases, the sale of a system designed for
            a particular customer may result from an engineering and
            service relationship which has extended over several years.

            Research and Development

                 Research and development activities emphasize product
            development and applied research, with the goal of
            developing proprietary products.  Such expenditures totaled
            $10,635,000 in 1997, $10,937,000 in 1996 and $9,399,000 in
            1995.  The Company anticipates that research and development
            expenditures in 1998 will be reduced fromthe 1997 level as a
            percent of sales.

            Patents and Trademarks

                 The Company has been granted domestic and certain
            foreign trademarks on numerous product names, and on its
            logo-types.  The Company holds domestic and foreign patents
            on certain of its filter media, filters, controlling valves,
            machine designs and other products.  Although the Company
            believes that its patents have value, the Company's business
            is not dependent on any patent or group of related patents.
             The Company considers its technological position to be
            based primarily on its proprietary manufacturing methods,
            innovative engineering and marketing expertise.

            Employees

                 As of December 31, 1997, the Company employed 1,433
            persons, including 257 holding engineering or technical
            degrees.

            Competition

                 The Company experiences competition from a variety of
            sources with respect to virtually all of its products,
            although the Company knows of no single entity that competes
            with it across the full range of its products and systems.
            Competition in the markets served by the Company is based on
            a number of factors, which may include price, technology,
            applications experience, know-how, availability of
            financing, reputation, product warranties, reliability,
            service and distribution.

                 With respect to the Company's membrane and related
            water treatment equipment business activity, there are a
            number of companies, including several sizable chemical
            companies, that manufacture membranes, but not equipment.
            There are numerous smaller companies, primarily fabricators,
            that build water treatment and desalination equipment, but
            which generally do not have their own proprietary membrane
            technology.  A limited number of companies manufacture both
            membranes and equipment.  In ozone and distillation
            equipment, there are both large and small competitors with
            no single dominant competitor.  In water softener controls
            and valves, the Company has three primary and numerous
            secondary competitors.  Some competitors sell only
            controller valves and some sell complete softeners.  The
            Company has numerous competitors in its conventional water
            treatment and filtration products business activities.

                 With respect to the Company's disposable filter and lab
            products, two companies, Pall and Millipore, dominate the
            industry with several smaller companies competing in
            selected product lines.

                 With respect to the Company's pump and fluid handling
            products, there are numerous competitors of larger size and
            with greater resources than the Company.  Some competitors
            have significantly broader product lines than the Company.

                 The Company is unable to state with certainty its
            relative market position in all aspects of its business.
            Many of its competitors have financial and other resources
            greater than those of the Company.

            Raw Materials

                 The principal raw materials used by the Company are
            various plastic materials including polyvinyl chloride,
            polypropylene, Noryl PPO, Nylon cellulose acetate,
            polycarbonate, polyester, polysulfone, and PTFE; ceramic and
            glass materials, stainless steel, steel, brass, copper,
            titanium, silver and various other synthetic materials, all
            of which are normally available from sources within the
            continental United States.  Most raw materials used by the
            Company are available from multiple sources of supply.  A
            limited number of materials are proprietary products of
            major chemical companies which, if not available, would have
            a material effect on the Company's sales and profits.  The
            Company believes it could find substitutes for these
            materials if they should become unavailable, but has no
            assurance that the substitute would perform as well or be
            priced as favorably.

                 To date, the Company has experienced no difficulty in
            securing any of its needed raw materials and components.

            Customers

                 No one customer accounted for 10 percent or more of the
            Company's consolidated revenue in 1997, 1996 or 1995.

            Backlog

                 The dollar amount of the Company's backlog of orders
            considered to be firm at December 31, 1997, was $28.2
            million.  The comparable backlog at December 31, 1996, was
            $27.9 million.  The Company expects that nearly all orders
            included in the backlog at December 31, 1997, will be filled
            during the 1998 fiscal year.  The Company does not believe
            that its backlog at any time is necessarily indicative of
            annual sales.  The business of the Company is not subject to
            significant seasonal variations.

            Governmental Regulation

                 Certain applications of the Company's reverse osmosis
            and ultrafiltration products and distillation equipment are
            subject to governmental regulation.  Products used for
            fractionation of cheese whey for human consumption are
            subject to regulation by the United States Department of
            Agriculture.  Reverse osmosis, ultrafiltration and
            distillation systems used in medical applications,
            particularly the systems used in artificial kidney dialysis
            equipment and pharmaceutical water for injection, are
            subject to regulation by the United States Food and Drug
            Administration.  Ultrafiltration and microfiltration
            products used for biological separations are subject to
            regulation by the United States Food and Drug
            Administration.

                 To date, compliance with federal, state and local
            provisions relating to the protection of the environment has
            had no material effect upon the capital expenditures,
            earnings or competitive position of the Company.

            Foreign Operations

                 Substantially all of the Company's operations and
            assets are located in the United States.  The Company has
            sales offices and distribution facilities in France,
            Thailand, Switzerland, Hong Kong, Japan, Singapore and
            China.  Limited assembly is conducted in Europe and Asia.
            The profitability of domestic and foreign sales is
            substantially equal.  Sales to Canada are made on the same
            trade terms as are available to U.S. customers.

                 Large export sales are primarily made on the basis of
            confirmed irrevocable letters of credit or time drafts to
            selected customers in U.S. dollars.  Therefore, the Company
            believes that problems of currency fluctuation or political
            and economic stability do not constitute substantial risks.
             See Note 13 of Notes to Consolidated Financial Statements
            for a breakdown of the Company's foreign operations and
            export sales by geographic area.


            ITEM 2.  PROPERTIES

                 The executive offices and principal manufacturing
            facilities of the Company are located in Minnetonka,
            Minnesota, a suburb of Minneapolis.

                 A summary of the Company's main operating facilities is
            as follows:

                Location    Status     Size            Function

            Minnetonka, MN  Owned 309,600 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Vista, CA       Owned 108,000 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Milwaukee, WI   Owned 103,700 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Rockford, IL    Owned  58,400 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Phoenix, AZ     Owned  57,600 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Syracuse, NY    Owned  48,500 sq  Sales, Manufacturing,
                                      ft      Warehouse

            Westborough, M  Leased 47,500 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Rockland, MA    Leased 38,200 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Escondido, CA   Leased 30,000 sq  Manufacturing
                                       ft

            Upland, CA      Leased 22,000 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Denver, CO      Owned  20,700 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Ft. Lauderdale  Leased 20,000 sq  Sales, Warehouse
            FL                         ft

            Le Mee, France  Owned  18,300 sq  Sales, Manufacturing,
                                       ft     Warehouse

            Emmetsburg, IA  Leased 8,800 sq   Manufacturing,
                                       ft     Warehouse

            Livermore, CA   Leased 6,000 sq   Sales, Manufacturing,
                                       ft     Warehouse

            Bryan, TX       Owned   2,500 sq  Manufacturing,
                                       ft     Warehouse

            Total Owned           727,300 sq
                                       ft

            Total Leased          172,500 sq
                                       ft

            Total Owned
              and Leased          899,800 sq
                                       ft

                 Certain industrial revenue bonds of the Company are
            collateralized by real property of the Company.

                 The current manufacturing facilities are adequate for
            intermediate-term operations.  In addition, the Company
            leases space in Thailand, China, Japan, Hong Kong,
            Switzerland and Singapore that is used primarily for sales
            activities.

            ITEM 3.  LEGAL PROCEEDINGS

                 The Company is currently involved in several lawsuits
            incidental to its business.  Management does not believe
            that any of the lawsuits will have a material adverse effect
            on the Company's financial position or results of
            operations.

            ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                 No matter was submitted to a vote of the Company's
            security holders during the fourth quarter of the fiscal
            year that ended December 31, 1997.


                      Executive Officers of the Registrant

                                                              Officer
            Name and Age           Position with Company       Since

          D. Dean Spatz (53)       Chief Executive Officer     1969
                                   and Chairman of the Board

          Ruth Carol Spatz (53)    Secretary                   1969

          Howard W. Dicke (60)     Vice President Human        1978
                                   Resources and Corporate
                                   Development, and Treasurer

          L. Lee Runzheimer (55)   Chief Financial Officer     1988

          James J. Carbonari (56)  Vice President Sales &
                                   Marketing                   1989

          Kenneth E. Jondahl (41)  Vice President
                                   International               1991

          Andrew T. Rensink (41)   Vice President Technology   1991

          Kenton C. Toomey (50)    Vice President Operations   1997

                 All of the executive officers except Mr. Toomey have
            been officers of the Company for more than five years. Mr.
            Toomey joined Osmonics in April of 1997 as Vice President
            Operations.  Prior to that he had been the Vice President of
            Operations for DeZurik, a unit of General Signal.
            Previously, throughout his 26 years with 3M Company, Mr.
            Toomey held numerous director and management positions in
            several 3M business units including plant manager of the
            Dental Products Division.  All executive officers are
            elected annually by, and serve at the direction of, the
            Board of Directors.  D. Dean Spatz and Ruth Carol Spatz are
            husband and wife.

                                    PART II

            ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
                          RELATED SHAREHOLDER MATTERS

                 "Common Stock Data," and "Notes to Consolidated
            Financial Statements," pages 19-23 of the Annual Report to
            Shareholders, are incorporated herein by reference.  As of
            March 4, 1998 there were 2,499 shareholders of record.

                 The Company has not paid cash dividends on its common
            shares.  The Board of Directors currently intends to retain
            its earnings for the expansion of the Company's business.
            The Company has issued promissory notes which contain a
            covenant limiting the payment of dividends to shareholders.
            At December 31, 1997, approximately $38,901,000 of retained
            earnings was restricted under this covenant.

            ITEM 6.  SELECTED FINANCIAL DATA

                 "Selected Financial Data," page 29 of the Annual Report
            to Shareholders, is incorporated herein by reference.

            ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                          CONDITION AND RESULTS OF OPERATIONS

                 "Management's Discussion and Analysis of Financial
            Condition and Results of Operations," pages 24 and 25 of the
            Annual Report to Shareholders, is incorporated herein by
            reference.

            ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                 The following consolidated financial information of the
            Registrant and its subsidiaries, included in the Annual
            Report to Shareholders, is incorporated herein by reference:

                                                              Page(s)

                 Consolidated Statements of Income  . . . . .    16

                 Consolidated Balance Sheets  . . . . . . . .    17

                 Consolidated Statements of Cash Flows  . . .    18

                 Consolidated Statements of Changes in

                 Shareholders' Equity   . . . . . . . . . . .    19

                 Notes to Consolidated Financial Statements .   19-23

                 Independent Auditors' Report   . . . . . . .    24

                 Quarterly Income Data  . . . . . . . . . . .    26


                                    PART III

          ITEM 10.  DIRECTORS

                 The information required by this Item is incorporated
          herein by reference to the definitive Proxy Statement, to be
          filed with the Securities and Exchange Commission within 120 days
          after the close of the Company's fiscal year ended December 31,
          1997 and forwarded to stockholders prior to the Company's 1998
          Annual Meeting of Stockholders (the 1998 Proxy Statement).


            ITEM 11.  EXECUTIVE COMPENSATION

                 The information required by this Item is incorporated
            herein by reference to the 1998 Proxy Statement.


            ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                      AND MANAGEMENT

                 The information required by this Item is incorporated
            herein by reference to the 1998 Proxy Statement.

            ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                 The information required by this Item is incorporated
            herein by reference to the 1998 Proxy Statement.


                                    PART IV

            ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND
                      REPORTS ON FORM 8-K

                    (a) (1) Financial Statement

                            The consolidated financial statements of the
                            Registrant and its subsidiaries, included in
                            the Annual Report to Shareholders, are
                            incorporated by reference in Item 8, and are
                            also incorporated herein by reference.

                    (a) (2) Financial Statement Schedules

                            Reports of Independent Public Accountants on
                            Supplemental Schedules to the Consolidated
                            Financial Statements.

                            Valuation and qualifying accounts.

                            Schedules not listed above have been omitted
                            because they are either not applicable, not
                            material or the required information has
                            been given in the financial statements or in
                            the notes to the financial statements.

                        (2) Agreement and Plan of Merger among
                            Desalination Systems, Inc., Osmonics, Inc.
                            and DSI Acquisition Corp. dated
                            May 17, 1996.  (Incorporated herein by
                            reference to Exhibit 2 to Registration
                            Statement on Form S-3, File No. 33-05029.)

                            (3)A. Certificate of Incorporation of the
                                  Registrant, as amended.  (Incorporated
                                  herein by reference to Exhibit 3.1 to
                                  Registration Statement on Form S-2,
                                  File No. 33-336.)  Certificate of
                                  Amendment.  (Incorporated herein by
                                  reference to Exhibit (3)A on Form 10-K
                                  for fiscal year ended December 31,
                                  1987, File No. 0-8282.)

                               B. By-Laws of the Registrant.
                                  (Incorporated herein by reference to
                                  Exhibit 3.2 to Registration Statement
                                  on Form S-2, File No. 33-336.)

                            (4)A. Note Purchase Agreement dated July 12,
                                  1991.  (Incorporated herein by
                                  reference to Annual Report on Form 10-
                                  K for fiscal year ended December 31,
                                  1991.)

                          (10)A.* 1993 Stock Option Plan and related
                                  form of stock option agreement.
                                  (Incorporated herein by reference to
                                  Annex C of the Registrant's Joint
                                  Proxy Statement/Prospectus dated
                                  September 10, 1993.)

                            B.    Stock Option Agreement with Michael L.
                                  Snow, Director.  (Incorporated herein
                                  by reference to Annual Report on Form
                                  10-K for fiscal year ended December
                                  31, 1993.)

                            C.*   1983 Stock Option Plan and related
                                  form of stock option agreement.
                                  (Incorporated herein by reference to
                                  Exhibit 10.2 to Registration Statement
                                  on Form S-2, File No. 33-336.)

                            D.    1995 Employee Stock Purchase Plan.
                                  (Incorporated herein by reference to
                                  the Registrant's Proxy Statement dated
                                  March 27, 1995.)

                            E.*   1995 Director Stock Option Plan.
                                  (Incorporated herein by reference to
                                  the Registrant's Proxy Statement dated
                                  March 27, 1995.)

                                  * Denotes Executive Compensation Plan.

                           (13)   1997 Annual Report to Shareholders.
                                  (Only those portions incorporated
                                  herein by reference shall be deemed
                                  filed with the Commission.)

                           (21)   Subsidiaries of the Registrant.

                           (23)   Consent of Deloitte & Touche LLP.

                    (b)     Reports on Form 8-K

                            No reports on Form 8-K were filed during the
                            quarter ended December 31, 1997.


                                     SIGNATURES

                Pursuant to the requirements of Section 13 or 15(d) 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.

                                     OSMONICS, INC.

                                     By  /s/ D. Dean Spatz
                                             D. Dean Spatz, President

            Dated:  March 30, 1998


                Pursuant to the requirements of the Securities Exchange
            Act of 1934, this report has been signed below by the
            following persons on behalf of the registrant and in the
            capacities and on the dates indicated:

                 Signatures                  Title                Date


            /s/ L.Lee Runzheimer      Chief Financial          March 30,
                L.Lee Runzheimer      Officer                  1998
                                      (Principal Finance
                                      and Accounting
                                      Officer)

            /s/ Howard W. Dicke       Vice President           March 30,
                Howard W. Dicke       Human Resources          1998
                                      and Corporate
                                      Development, and
                                      Treasurer

            /s/ Ruth Carol Spatz      Director                 March 30,
                Ruth Carol Spatz                               1998

            /s/ Michael L. Snow       Director                 March 30,
                Michael L. Snow                                1998

            /s/ Ralph E. Crump        Director                 March 30,
                Ralph E. Crump                                 1998

            /s/ Verity C. Smith       Director                 March 30,
                Verity C. Smith                                1998

            /s/ Charles W. Palmer     Director                 March 30,
                Charles W. Palmer                              1998

            /s/ William Eykamp        Director                 March 30,
                William Eykamp                                 1998

            /s/ D. Dean Spatz         President,               March 30,
                D. Dean Spatz         Chairman of the          1998
                                      Board and Director
                                      (Principal
                                      Executive Officer)