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

                           FORM 10-QSB

           Quarterly Report Under Section 13 or 15(d)
             of The Securities Exchange Act of 1934

           For the Quarter Ended:  September 30, 2006

                Commission file number:  0-29274


           AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)


     State of Minnesota                     41-1789725
(State or other Jurisdiction of         (I.R.S. Employer
Incorporation or Organization)        Identification No.)


    30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
             (Address of Principal Executive Offices)

                         (651) 227-7333
                   (Issuer's telephone number)


                        Not  Applicable
 (Former name, former address and former fiscal year, if changed
                       since last report)

Check  whether  the issuer (1) filed all reports required  to  be
filed by Section 13 or 15(d) of the Exchange Act during the  past
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 whether the registrant is a shell  company
(as defined in Rule 12b-2 of the Exchange Act). Yes       No [X]

Transitional Small Business Disclosure Format:  Yes       No [X]


        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP


                              INDEX




PART I. Financial Information

 Item 1. Balance Sheet as of September 30, 2006 and December 31, 2005

         Statements for the Periods ended September 30, 2006 and 2005:

           Income

           Cash Flows

           Changes in Partners' Capital

        Notes to Financial Statements

 Item 2. Management's Discussion and Analysis

 Item 3. Controls and Procedures

PART II. Other Information

 Item 1. Legal Proceedings

 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 Item 3. Defaults Upon Senior Securities

 Item 4. Submission of Matters to a Vote of Security Holders

 Item 5. Other Information

 Item 6. Exhibits

         Signatures


<PAGE>
        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
                          BALANCE SHEET
            SEPTEMBER 30, 2006 AND DECEMBER 31, 2005

                           (Unaudited)

                             ASSETS

                                                      2006          2005
CURRENT ASSETS:
  Cash and Cash Equivalents                       $   887,032    $   862,160
  Receivables                                           1,231          2,232
                                                   -----------    -----------
      Total Current Assets                            888,263        864,392
                                                   -----------    -----------
INVESTMENTS IN REAL ESTATE:
  Land                                              5,882,375      5,766,615
  Buildings and Equipment                          11,682,286     11,488,937
  Accumulated Depreciation                         (1,794,343)    (1,630,529)
                                                   -----------    -----------
                                                   15,770,318     15,625,023
  Real Estate Held for Sale                         1,367,589      1,795,224
                                                   -----------    -----------
      Net Investments in Real Estate               17,137,907     17,420,247
                                                   -----------    -----------
          Total Assets                            $18,026,170    $18,284,639
                                                   ===========    ===========

                      LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
  Payable to AEI Fund Management, Inc.            $    34,274    $    10,510
  Distributions Payable                               524,665        583,254
  Unearned Rent                                        46,409         32,784
                                                   -----------    -----------
      Total Current Liabilities                       605,348        626,548
                                                   -----------    -----------
PARTNERS' CAPITAL:
  General Partners                                     11,775         14,148
  Limited Partners, $1,000 per Unit;
   24,000 Units authorized and issued;
   22,802 Units outstanding                        17,409,047     17,643,943
                                                   -----------    -----------
      Total Partners' Capital                      17,420,822     17,658,091
                                                   -----------    -----------
        Total Liabilities and Partners' Capital   $18,026,170    $18,284,639
                                                   ===========    ===========

 The accompanying Notes to Financial Statements are an integral
                     part of this statement.
</PAGE>
<PAGE>
        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
                       STATEMENT OF INCOME
               FOR THE PERIODS ENDED SEPTEMBER 30

                           (Unaudited)

                                  Three Months Ended       Nine Months Ended
                                 9/30/06      9/30/05     9/30/06     9/30/05

RENTAL INCOME                  $  364,634  $  358,930  $1,105,081  $1,044,027

EXPENSES:
   Partnership Administration -
     Affiliates                    59,667      67,527     171,669     189,640
   Partnership Administration
     and Property Management -
     Unrelated Parties              5,243       9,255      31,782      30,830
   Depreciation                   105,387     103,514     312,029     301,038
                                ----------  ----------  ----------  ----------
        Total Expenses            170,297     180,296     515,480     521,508
                                ----------  ----------  ----------  ----------

OPERATING INCOME                  194,337     178,634     589,601     522,519

OTHER INCOME:
   Interest Income                 24,119       9,236      44,052      33,652
                                ----------  ----------  ----------  ----------
INCOME FROM CONTINUING
   OPERATIONS                     218,456     187,870     633,653     556,171

Income from Discontinued
  Operations                      232,197      48,163     711,894     145,413
                                ----------  ----------  ----------  ----------
NET INCOME                     $  450,653  $  236,033  $1,345,547  $  701,584
                                ==========  ==========  ==========  ==========
NET INCOME ALLOCATED:
   General Partners            $    4,506  $    2,360  $   13,455  $    7,016
   Limited Partners               446,147     233,673   1,332,092     694,568
                                ----------  ----------  ----------  ----------
                               $  450,653  $  236,033  $1,345,547  $  701,584
                                ==========  ==========  ==========  ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
   Continuing Operations       $     9.48  $     8.15  $    27.51  $    24.13
   Discontinued Operations          10.09        2.09       30.91        6.31
                                ----------  ----------  ----------  ----------
        Total                  $    19.57  $    10.24  $    58.42  $    30.44
                                ==========  ==========  ==========  ==========
Weighted Average Units Outstanding 22,802      22,819      22,802      22,819
                                ==========  ==========  ==========  ==========

 The accompanying Notes to Financial Statements are an integral
                     part of this statement.
</PAGE>
<PAGE>
        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
                     STATEMENT OF CASH FLOWS
          FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30

                           (Unaudited)

                                                       2006         2005
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                      $ 1,345,547   $   701,584

   Adjustments to Reconcile Net Income to Net Cash
   Provided by Operating Activities:
     Depreciation                                      332,954       363,129
     Gain on Sale of Real Estate                      (568,422)            0
     Decrease in Receivables                             1,001        13,316
     Increase (Decrease) in Payable to
        AEI Fund Management, Inc.                       23,764       (14,429)
     Increase in Unearned Rent                          13,625        66,569
                                                    -----------   -----------
        Total Adjustments                             (197,078)      428,585
                                                    -----------   -----------
        Net Cash Provided By
          Operating Activities                       1,148,469     1,130,169
                                                    -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Investments in Real Estate                       (1,667,348)   (3,347,879)
   Proceeds from Sale of Real Estate                 2,185,156             0
                                                    -----------   -----------
        Net Cash Provided By (Used For)
           Investing Activities                        517,808    (3,347,879)
                                                    -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Decrease in Distributions Payable                   (58,589)     (302,438)
   Distributions to Partners                        (1,582,816)   (1,530,303)
                                                    -----------   -----------
        Net Cash Used For
          Financing Activities                      (1,641,405)   (1,832,741)
                                                    -----------   -----------
NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                                 24,872    (4,050,451)

CASH AND CASH EQUIVALENTS, beginning of period         862,160     5,295,303
                                                    -----------   -----------
CASH AND CASH EQUIVALENTS, end of period           $   887,032   $ 1,244,852
                                                    ===========   ===========


 The accompanying Notes to Financial Statements are an integral
                     part of this statement.
</PAGE>
<PAGE>
        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
            STATEMENT OF CHANGES IN PARTNERS' CAPITAL
               FOR THE PERIODS ENDED SEPTEMBER 30

                           (Unaudited)


                                                                 Limited
                                                               Partnership
                             General     Limited                  Units
                             Partners    Partners    Total     Outstanding


BALANCE, December 31, 2004  $ 25,818  $18,799,339  $18,825,157   22,819.45

  Distributions              (15,303)  (1,515,000)  (1,530,303)

  Net Income                   7,016      694,568      701,584
                             --------  -----------  -----------  ----------
BALANCE, September 30, 2005 $ 17,531  $17,978,907  $17,996,438   22,819.45
                             ========  ===========  ===========  ==========


BALANCE, December 31, 2005  $ 14,148  $17,643,943  $17,658,091   22,802.45

  Distributions              (15,828)  (1,566,988)  (1,582,816)

  Net Income                  13,455    1,332,092    1,345,547
                             --------  -----------  -----------  ----------
BALANCE, September 30, 2006 $ 11,775  $17,409,047  $17,420,822   22,802.45
                             ========  ===========  ===========  ==========


 The accompanying Notes to Financial Statements are an integral
                     part of this statement.
</PAGE>
<PAGE>
        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
                  NOTES TO FINANCIAL STATEMENTS
                       SEPTEMBER 30, 2006

                           (Unaudited)

(1)  The  condensed  statements included herein have been  prepared
     by  the Partnership, without audit, pursuant to the rules  and
     regulations  of  the Securities and Exchange  Commission,  and
     reflect   all  adjustments  which  are,  in  the  opinion   of
     management,  necessary to a fair statement of the  results  of
     operations for the interim period, on a basis consistent  with
     the  annual audited statements.  The adjustments made to these
     condensed   statements  consist  only  of   normal   recurring
     adjustments.   Certain information, accounting  policies,  and
     footnote    disclosures   normally   included   in   financial
     statements  prepared  in  accordance with  generally  accepted
     accounting principles have been condensed or omitted  pursuant
     to  such  rules  and  regulations,  although  the  Partnership
     believes  that  the  disclosures  are  adequate  to  make  the
     information  presented not misleading.  It is  suggested  that
     these  condensed financial statements be read  in  conjunction
     with  the  financial statements and the summary of significant
     accounting  policies  and  notes  thereto  included   in   the
     Partnership's latest annual report on Form 10-KSB.

(2)  Organization -

     AEI   Income   &   Growth   Fund  XXI  Limited   Partnership
     (Partnership)  was  formed to acquire and  lease  commercial
     properties   to   operating  tenants.    The   Partnership's
     operations  are  managed by AEI Fund  Management  XXI,  Inc.
     (AFM), the Managing General Partner.  Robert P. Johnson, the
     President and sole director of AFM, serves as the Individual
     General  Partner.  AFM is a wholly owned subsidiary  of  AEI
     Capital  Corporation of which Mr. Johnson  is  the  majority
     shareholder.  AEI Fund Management, Inc. (AEI), an  affiliate
     of  AFM, performs the administrative and operating functions
     for the Partnership.

     The   terms  of  the  Partnership  offering  called  for   a
     subscription  price of $1,000 per Limited Partnership  Unit,
     payable   on  acceptance  of  the  offer.   The  Partnership
     commenced   operations  on  April  14,  1995  when   minimum
     subscriptions    of   1,500   Limited   Partnership    Units
     ($1,500,000)  were  accepted.   On  January  31,  1997,  the
     offering  terminated when the maximum subscription limit  of
     24,000  Limited  Partnership Units was reached.   Under  the
     terms  of  the  Limited Partnership Agreement,  the  Limited
     Partners   and   General  Partners  contributed   funds   of
     $24,000,000 and $1,000, respectively.

     During operations, any Net Cash Flow, as defined, which  the
     General Partners determine to distribute will be distributed
     90% to the Limited Partners and 10% to the General Partners;
     provided,  however, that such distributions to  the  General
     Partners will be subordinated to the Limited Partners  first
     receiving an annual, noncumulative distribution of Net  Cash
     Flow equal to 10% of their Adjusted Capital Contribution, as
     defined,  and, provided further, that in no event  will  the
     General Partners receive less than 1% of such Net Cash  Flow
     per  annum.  Distributions to Limited Partners will be  made
     pro rata by Units.


        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
                  NOTES TO FINANCIAL STATEMENTS
                           (Continued)

(2)  Organization - (Continued)

     Any  Net  Proceeds  of Sale, as defined, from  the  sale  or
     financing of properties which the General Partners determine
     to distribute will, after provisions for debts and reserves,
     be  paid  in  the following manner: (i) first,  99%  to  the
     Limited  Partners and 1% to the General Partners  until  the
     Limited  Partners  receive an amount  equal  to:  (a)  their
     Adjusted  Capital Contribution plus (b) an amount  equal  to
     10%  of  their  Adjusted  Capital  Contribution  per  annum,
     cumulative  but not compounded, to the extent not previously
     distributed from Net Cash Flow;  (ii) any remaining  balance
     will  be distributed 90% to the Limited Partners and 10%  to
     the General Partners.  Distributions to the Limited Partners
     will be made pro rata by Units.

     For   tax   purposes,  profits from operations,  other  than
     profits  attributable  to  the  sale,  exchange,  financing,
     refinancing  or  other  disposition  of  property,  will  be
     allocated  first  in the same ratio in  which,  and  to  the
     extent,  Net  Cash Flow is distributed to the  Partners  for
     such year.  Any additional profits will be allocated in  the
     same  ratio  as  the  last  dollar  of  Net  Cash  Flow   is
     distributed.   Net losses from operations will be  allocated
     99% to the Limited Partners and 1% to the General Partners.

     For  tax purposes, profits arising from the sale, financing,
     or  other  disposition  of property  will  be  allocated  in
     accordance  with the Partnership Agreement as  follows:  (i)
     first,  to  those  partners with deficit balances  in  their
     capital  accounts  in an amount equal to  the  sum  of  such
     deficit  balances; (ii) second, 99% to the Limited  Partners
     and  1%  to the General Partners until the aggregate balance
     in  the Limited Partners' capital accounts equals the sum of
     the Limited Partners' Adjusted Capital Contributions plus an
     amount  equal to 10% of their Adjusted Capital Contributions
     per  annum, cumulative but not compounded, to the extent not
     previously  allocated;  (iii)  third,  the  balance  of  any
     remaining  gain  will then be allocated 90% to  the  Limited
     Partners  and 10% to the General Partners.  Losses  will  be
     allocated 98% to the Limited Partners and 2% to the  General
     Partners.

     The  General Partners are not required to currently  fund  a
     deficit   capital   balance.   Upon   liquidation   of   the
     Partnership or withdrawal by a General Partner, the  General
     Partners will contribute to the Partnership an amount  equal
     to  the  lesser  of  the deficit balances in  their  capital
     accounts  or  1%  of  total Limited  Partners'  and  General
     Partners' capital contributions.

(3)  Reclassification -

     Certain items in the prior year's financial statements  have
     been  reclassified  to conform to 2006 presentation.   These
     reclassifications  had no effect on Partners'  capital,  net
     income or cash flows.


        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
                  NOTES TO FINANCIAL STATEMENTS
                           (Continued)

(4)  Investments in Real Estate -

     In February 2005, Winn-Dixie Montgomery, Inc., the tenant of
     the Winn-Dixie store in Panama City, Florida, and its parent
     company,  Winn-Dixie, Inc., filed for Chapter 11  bankruptcy
     reorganization.   Rents  are  current  and  the  Partnership
     expects to continue to receive all scheduled rents in future
     months unless the Lease is rejected by Winn-Dixie.  On  June
     29,  2006, Winn-Dixie issued a press release announcing that
     it  filed  its  proposed  Plan of  Reorganization  with  the
     bankruptcy  court.  If the Plan is confirmed by  the  court,
     Winn-Dixie  expects  to  emerge from Chapter  11  protection
     later  this year.  Under the proposed Plan, Winn-Dixie would
     assume  the lease for this store.  If the Lease is  assumed,
     Winn-Dixie must comply with all Lease terms.  If  the  Lease
     is   rejected,  Winn-Dixie  would  be  required  to   return
     possession  of  the  property to  the  Partnership  and  the
     Partnership would be responsible for real estate  taxes  and
     other  costs associated with maintaining the property.   The
     Partnership has evaluated the lease and property  value  and
     decided  that there is no impairment loss at this time.   At
     September  30,  2006, the book value of  this  property  was
     $853,370.

     On  January  14,  2005,  the  Partnership  purchased  a  40%
     interest  in a Jared Jewelry store in Auburn Hills, Michigan
     for $1,466,048.  The property is leased to Sterling Jewelers
     Inc.  under a Lease Agreement with a remaining primary  term
     of  15  years  and annual rental payments of $102,520.   The
     remaining  interest  in the property was  purchased  by  AEI
     Income   &  Growth  Fund  25  LLC,  an  affiliate   of   the
     Partnership.

     On  March 18, 2005, the Partnership purchased a 20% interest
     in  a CarMax auto superstore in Lithia Springs, Georgia  for
     $1,885,231.    The  property  is  leased  to   CarMax   Auto
     Superstores, Inc. under a Lease Agreement with  a  remaining
     primary  term  of 13.4 years and annual rental  payments  of
     $136,080.   The  remaining interests in  the  property  were
     purchased by AEI Income & Growth Fund 24 LLC, AEI  Income  &
     Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund
     Limited Partnership, affiliates of the Partnership.

     On  September  21,  2006, the Partnership  purchased  a  62%
     interest   in   an  Applebee's  restaurant   in   Johnstown,
     Pennsylvania for $1,667,348.  The property is leased to B.T.
     Woodlipp,  Inc. under a Lease Agreement with a primary  term
     of  20  years  and annual rental payments of $121,340.   The
     remaining  interest  in the property was  purchased  by  AEI
     Income  & Growth Fund XXII Limited Partnership, an affiliate
     of the Partnership.

(5)  Payable to AEI Fund Management, Inc. -

     AEI  Fund  Management, Inc. performs the administrative  and
     operating functions for the Partnership.  The payable to AEI
     Fund   Management  represents  the  balance  due  for  those
     services.    This  balance  is  non-interest   bearing   and
     unsecured  and  is  to  be  paid in  the  normal  course  of
     business.

        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
                  NOTES TO FINANCIAL STATEMENTS
                           (Continued)

(6)  Discontinued Operations -

     During  the first nine months of 2006, the Partnership  sold
     23.8159%  of  the Eckerd drug store in Utica, New  York,  in
     five separate transactions, to unrelated third parties.  The
     Partnership  received total net sale proceeds of $1,319,252,
     which  resulted  in a net gain of $250,379.   The  cost  and
     related  accumulated depreciation of the interests sold  was
     $1,100,359  and  $31,486, respectively.  The Partnership  is
     attempting  to sell its remaining 16.1841% interest  in  the
     property.  At September 30, 2006 and December 31, 2005,  the
     property was classified as Real Estate Held for Sale with  a
     book value of $726,351 and $1,795,224, respectively.

     During  the first nine months of 2006, the Partnership  sold
     46.0736% of the Children's World daycare center in Kimberly,
     Wisconsin, in two separate transactions, to unrelated  third
     parties.   The Partnership received total net sale  proceeds
     of  $865,904, which resulted in a net gain of $318,043.  The
     cost  and  related accumulated depreciation of the interests
     sold was $625,790 and $77,929, respectively.

     Subsequent  to September 30, 2006, the Partnership  sold  an
     additional  16.4811% of the Children's World daycare  center
     in  Kimberly,  Wisconsin to an unrelated third  party.   The
     Partnership  received  net  sale proceeds  of  approximately
     $309,000,  which  resulted in a net  gain  of  approximately
     $113,000.  The cost and related accumulated depreciation  of
     the  interest  sold was $223,853 and $27,876,  respectively.
     The Partnership is attempting to sell its remaining 37.4453%
     interest  in  the  property.  At  September  30,  2006,  the
     property was classified as Real Estate Held for Sale with  a
     book value of $641,238.

     During  the  first  nine  months  of  2006  and  2005,   the
     Partnership  distributed $472,737 and $467,043 of  net  sale
     proceeds  to  the Limited and General Partners  as  part  of
     their quarterly distributions, which represented a return of
     capital  of $20.53 and $20.26 per Limited Partnership  Unit,
     respectively.  The Partnership anticipates the remaining net
     sale  proceeds  will  either  be  reinvested  in  additional
     property or distributed to the Partners in the future.


        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
                  NOTES TO FINANCIAL STATEMENTS
                           (Continued)

(6)  Discontinued Operations - (Continued)

     The financial results for these properties are reflected  as
     Discontinued   Operations  in  the  accompanying   financial
     statements.   The following are the results of  discontinued
     operations for the periods ended September 30:

                                  Three Months Ended      Nine Months Ended
                                 9/30/06      9/30/05    9/30/06     9/30/05

Rental Income                  $  37,802   $  69,689   $ 165,337   $ 209,068
Property Management Expenses           0        (829)       (940)     (1,564)
Depreciation                           0     (20,697)    (20,925)    (62,091)
Gain on Disposal of Real Estate  194,395           0     568,422           0
                                ---------   ----------  ---------   ---------
   Income from Discontinued
     Operations                $ 232,197   $  48,163   $ 711,894   $ 145,413
                                =========   ==========  =========   =========

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS

        The Management's Discussion and Analysis contains various
"forward  looking  statements"  within  the  meaning  of  federal
securities  laws  which  represent management's  expectations  or
beliefs  concerning future events, including statements regarding
anticipated  application of cash, expected  returns  from  rental
income,  growth  in revenue, taxation levels, the sufficiency  of
cash to meet operating expenses, rates of distribution, and other
matters.  These, and other forward looking statements made by the
Partnership,  must be evaluated in the context  of  a  number  of
factors that may affect the Partnership's financial condition and
results of operations, including the following:

    Market  and  economic conditions which affect the  value
    of  the  properties the Partnership owns and  the  cash
    from rental income such properties generate;

    the  federal  income tax consequences of rental  income,
    deductions,  gain  on  sales and other  items  and  the
    affects of these consequences for the Partners;

    resolution  by  the General Partners of  conflicts  with
    which they may be confronted;

    the   success  of  the  General  Partners  of   locating
    properties with favorable risk return characteristics;

    the effect of tenant defaults; and

    the  condition of the industries in which the  tenants  of
    properties owned by the Partnership operate.


ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

The Application of Critical Accounting Policies

        The preparation of the Partnership's financial statements
requires  management to make estimates and assumptions  that  may
affect the reported amounts of assets, liabilities, revenues  and
expenses,  and  related  disclosure  of  contingent  assets   and
liabilities. Management evaluates these estimates on  an  ongoing
basis,  including  those related to the carrying  value  of  real
estate  and  the  allocation  by AEI  Fund  Management,  Inc.  of
expenses  to  the  Partnership as opposed  to  other  funds  they
manage.

        The Partnership purchases properties and records them  in
the  financial  statements  at the lower  of  cost  or  estimated
realizable   value.   The  Partnership  initially   records   the
properties  at cost (including capitalized acquisition expenses).
The Partnership is required to periodically evaluate the carrying
value  of properties to determine whether their realizable  value
has  declined.   For  properties the Partnership  will  hold  and
operate, management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows  to  its
current carrying value.  For properties held for sale, management
determines  whether  impairment has  occurred  by  comparing  the
property's estimated fair value less cost to sell to its  current
carrying  value.   If  the carrying value  is  greater  than  the
realizable  value, an impairment loss is recorded to  reduce  the
carrying value of the property to its realizable value.  A change
in  these assumptions or analysis could cause material changes in
the carrying value of the properties.

        AEI  Fund Management, Inc. allocates expenses to each  of
the  funds  they manage primarily on the basis of the  number  of
hours  devoted  by their employees to each fund's affairs.   They
also  allocate  expenses at the end of each month  that  are  not
directly related to a fund's operations based upon the number  of
investors  in the fund and the fund's capitalization relative  to
other  funds  they  manage.   The  Partnership  reimburses  these
expenses  subject  to  detailed  limitations  contained  in   the
Partnership Agreement.

         Management   of  the  Partnership  has   discussed   the
development  and selection of the above accounting estimates  and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.

Results of Operations

       For the nine months ended September 30, 2006 and 2005, the
Partnership  recognized rental income from continuing  operations
of  $1,105,081  and $1,044,027, respectively.   In  2006,  rental
income  increased  due  to additional rent  received  from  three
property  acquisitions in 2005 and 2006, rent increases on  three
properties and income received from a permanent easement  on  one
property.

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

       For the nine months ended September 30, 2006 and 2005, the
Partnership  incurred  Partnership administration  expenses  from
affiliated parties of $171,669 and $189,640, respectively.  These
administration  expenses  include  costs  associated   with   the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners.   During
the   same   periods,   the  Partnership   incurred   Partnership
administration  and property management expenses  from  unrelated
parties  of  $31,782 and $30,830, respectively.   These  expenses
represent  direct payments to third parties for legal and  filing
fees,  direct  administrative costs, outside audit costs,  taxes,
insurance and other property costs.

       For the nine months ended September 30, 2006 and 2005, the
Partnership  recognized interest income of $44,052  and  $33,652,
respectively.   In  2006, interest income increased  due  to  the
Partnership having more money invested in a money market  account
due to property sales.

        In February 2005, Winn-Dixie Montgomery, Inc., the tenant
of  the  Winn-Dixie store in Panama City, Florida, and its parent
company,  Winn-Dixie,  Inc.,  filed  for  Chapter  11  bankruptcy
reorganization.  Rents are current and the Partnership expects to
continue  to receive all scheduled rents in future months  unless
the  Lease  is rejected by Winn-Dixie.  On June 29,  2006,  Winn-
Dixie  issued  a  press  release announcing  that  it  filed  its
proposed  Plan of Reorganization with the bankruptcy  court.   If
the  Plan is confirmed by the court, Winn-Dixie expects to emerge
from  Chapter 11 protection later this year.  Under the  proposed
Plan,  Winn-Dixie would assume the lease for this store.  If  the
Lease  is  assumed, Winn-Dixie must comply with all Lease  terms.
If  the Lease is rejected, Winn-Dixie would be required to return
possession of the property to the Partnership and the Partnership
would  be  responsible  for real estate  taxes  and  other  costs
associated  with  maintaining the property.  The Partnership  has
evaluated the lease and property value and decided that there  is
no impairment loss at this time.  At September 30, 2006, the book
value of this property was $853,370.

        In  accordance  with  Statement of  Financial  Accounting
Standards  No. 144, Accounting for the Impairment or Disposal  of
Long-Lived  Assets,  upon  complete disposal  of  a  property  or
classification of a property as Real Estate Held  for  Sale,  the
Partnership  includes  the operating  results  and  sale  of  the
property   in   discontinued  operations.    In   addition,   the
Partnership reclassifies the prior periods operating results  and
any  partial  sales  of the property to discontinued  operations.
For  the  nine  months ended September 30, 2006, the  Partnership
recognized  income  from  discontinued  operations  of  $711,894,
representing rental income less property management expenses  and
depreciation of $143,472 and gain on disposal of real  estate  of
$568,422.   For  the nine months ended September  30,  2005,  the
Partnership  recognized  income from discontinued  operations  of
$145,413,  representing  rental income less  property  management
expenses and depreciation.

       During the first nine months of 2006, the Partnership sold
23.8159%  of  the Eckerd drug store in Utica, New York,  in  five
separate   transactions,  to  unrelated   third   parties.    The
Partnership received total net sale proceeds of $1,319,252, which
resulted  in  a  net  gain of $250,379.   The  cost  and  related
accumulated depreciation of the interests sold was $1,100,359 and
$31,486, respectively.  The Partnership is attempting to sell its
remaining  16.1841% interest in the property.  At  September  30,
2006  and December 31, 2005, the property was classified as  Real
Estate  Held  for  Sale  with  a  book  value  of  $726,351   and
$1,795,224, respectively.

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

       During the first nine months of 2006, the Partnership sold
46.0736%  of  the  Children's World daycare center  in  Kimberly,
Wisconsin,  in  two  separate transactions,  to  unrelated  third
parties.   The  Partnership received total net sale  proceeds  of
$865,904, which resulted in a net gain of $318,043.  The cost and
related  accumulated  depreciation  of  the  interests  sold  was
$625,790 and $77,929, respectively.

        Subsequent to September 30, 2006, the Partnership sold an
additional  16.4811% of the Children's World  daycare  center  in
Kimberly, Wisconsin to an unrelated third party.  The Partnership
received  net  sale  proceeds  of approximately  $309,000,  which
resulted  in a net gain of approximately $113,000.  The cost  and
related  accumulated  depreciation  of  the  interest  sold   was
$223,853   and   $27,876,  respectively.   The   Partnership   is
attempting  to  sell  its  remaining  37.4453%  interest  in  the
property.  At September 30, 2006, the property was classified  as
Real Estate Held for Sale with a book value of $641,238.

        Inflation  has  had  a  minimal  effect  on  income  from
operations.   Leases  may contain rent increases,  based  on  the
increase  in  the  Consumer Price Index over a specified  period,
which  will result in an increase in rental income over the  term
of  the  leases.   In addition, leases may contain  rent  clauses
which  entitle  the  Partnership to receive  additional  rent  in
future  years  if gross receipts for the property exceed  certain
specified  amounts.  Increases in sales volumes of  the  tenants,
due to inflation and real sales growth, may result in an increase
in rental income over the term of the leases.  Inflation also may
cause the real estate to appreciate in value.  However, inflation
and  changing prices may have an adverse impact on the  operating
margins  of  the  properties' tenants, which could  impair  their
ability  to  pay rent and subsequently reduce the Net  Cash  Flow
available for distributions.

Liquidity and Capital Resources

        During  the  nine months ended September  30,  2006,  the
Partnership's cash balances increased $24,872 as a result of cash
generated  from the sale of property, which was partially  offset
by  cash used to purchase property and distributions paid to  the
Partners  in  excess of cash generated from operating activities.
During   the   nine  months  ended  September   30,   2005,   the
Partnership's cash balances decreased $4,050,451 as a  result  of
cash  used  to purchase property and distributions  paid  to  the
Partners in excess of cash generated from operating activities.

        Net  cash provided by operating activities increased from
$1,130,169  in  2005 to $1,148,469 in 2006  as  a  result  of  an
increase  in  total  rental and interest income  in  2006  and  a
decrease  in  Partnership administration and property  management
expenses  in  2006,  which were partially offset  by  net  timing
differences  in the collection of payments from the  tenants  and
the payment of expenses.

        The  major components of the Partnership's cash flow from
investing activities are investments in real estate and  proceeds
from  the  sale  of  real estate.  During the nine  months  ended
September 30, 2006, the Partnership generated cash flow from  the
sale  of real estate of $2,185,156.  During the nine months ended
September  30, 2006 and 2005, the Partnership expended $1,667,348
and  $3,347,879,  respectively,  to  invest  in  real  properties
(inclusive of acquisition expenses) as the Partnership reinvested
cash generated from property sales completed in 2004 and 2006.


ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

        On  January  14,  2005, the Partnership purchased  a  40%
interest  in a Jared Jewelry store in Auburn Hills, Michigan  for
$1,466,048.   The  property is leased to Sterling  Jewelers  Inc.
under a Lease Agreement with a remaining primary term of 15 years
and  annual rental payments of $102,520.  The remaining  interest
in the property was purchased by AEI Income & Growth Fund 25 LLC,
an affiliate of the Partnership.

        On  March  18,  2005,  the Partnership  purchased  a  20%
interest  in a CarMax auto superstore in Lithia Springs,  Georgia
for   $1,885,231.   The  property  is  leased  to   CarMax   Auto
Superstores,  Inc.  under  a  Lease Agreement  with  a  remaining
primary  term  of  13.4  years  and  annual  rental  payments  of
$136,080.  The remaining interests in the property were purchased
by  AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund  25
LLC   and   AEI   Private  Net  Lease  Millennium  Fund   Limited
Partnership, affiliates of the Partnership.

        On  September 21, 2006, the Partnership purchased  a  62%
interest  in  an Applebee's restaurant in Johnstown, Pennsylvania
for  $1,667,348.  The property is leased to B.T.  Wooolipp,  Inc.
under  a  Lease  Agreement with a primary term of  20  years  and
annual  rental payments of $121,340.  The remaining  interest  in
the  property  was  purchased by AEI Income &  Growth  Fund  XXII
Limited Partnership, an affiliate of the Partnership.

        The  Partnership's primary use of cash flow,  other  than
investment   in  real  estate,  is  distribution  and  redemption
payments  to  Partners.   The Partnership  declares  its  regular
quarterly distributions before the end of each quarter  and  pays
the  distribution in the first ten days after  the  end  of  each
quarter.    The  Partnership  attempts  to  maintain   a   stable
distribution  rate from quarter to quarter.  Redemption  payments
are  paid  to  redeeming Partners in the fourth quarter  of  each
year.

       For the nine months ended September 30, 2006 and 2005, the
Partnership  declared distributions of $1,582,816 and $1,530,303,
respectively, which were distributed 99% to the Limited  Partners
and  1%  to the General Partners.  The Limited Partners  received
distributions  of  $1,566,988  and  $1,515,000  and  the  General
Partners  received distributions of $15,828 and $15,303  for  the
periods,  respectively.   In September  and  December  2005,  the
Partnership  declared  special  distributions  of  $303,030   and
$176,768,  respectively,  of  net sale  proceeds.   In  June  and
September 2006, the Partnership declared special distributions of
$237,374 and $118,182, respectively, of net sale proceeds,  which
resulted  in  higher distributions for the first nine  months  of
2006, when compared to the first nine months of 2005.

        During  the  first  nine months of  2006  and  2005,  the
Partnership  distributed  $472,737  and  $467,043  of  net   sale
proceeds  to  the Limited and General Partners as part  of  their
quarterly distributions, which represented a return of capital of
$20.53  and  $20.26  per Limited Partnership Unit,  respectively.
The  Partnership anticipates the remaining net sale proceeds will
either be reinvested in additional property or distributed to the
Partners in the future.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS.  (Continued)

        The  Partnership may acquire Units from Limited  Partners
who have tendered their Units to the Partnership.  Such Units may
be acquired at a discount.  The Partnership will not be obligated
to purchase in any year any number of Units that, when aggregated
with  all  other transfers of Units that have occurred since  the
beginning   of  the  same  calendar  year  (excluding   Permitted
Transfers as defined in the Partnership Agreement), would  exceed
5%  of the total number of Units outstanding on January 1 of such
year.  In no event shall the Partnership be obligated to purchase
Units if, in the sole discretion of the Managing General Partner,
such  purchase  would  impair the capital  or  operation  of  the
Partnership.

       During 2006, the Partnership did not redeem any Units from
the   Limited  Partners.   During  2005,  four  Limited  Partners
redeemed a total of 17 Partnership Units for $9,222 in accordance
with  the Partnership Agreement.  The Partnership acquired  these
Units  using  Net Cash Flow from operations.  In prior  years,  a
total  of 54 Limited Partners redeemed 1,180.55 Partnership Units
for  $939,802.   The  redemptions increase the remaining  Limited
Partners' ownership interest in the Partnership.  As a result  of
these   redemption  payments  and  pursuant  to  the  Partnership
Agreement, the General Partners received distributions of $93  in
2005.

       The continuing rent payments from the properties, together
with  cash  generated from property sales, should be adequate  to
fund   continuing   distributions  and  meet  other   Partnership
obligations on both a short-term and long-term basis.

ITEM 3.  CONTROLS AND PROCEDURES.

       (a) Evaluation of disclosure controls and procedures

        Under  the  supervision  and with  the  participation  of
management, including its President and Chief Financial  Officer,
the  Managing  General Partner of the Partnership  evaluated  the
effectiveness  of  the  design and operation  of  its  disclosure
controls  and procedures (as defined in Rule 13a-14(c) under  the
Exchange  Act).   Based upon that evaluation, the  President  and
Chief Financial Officer of the Managing General Partner concluded
that,  as  of  the end of the period covered by this report,  the
disclosure  controls  and  procedures  of  the  Partnership   are
adequately  designed to ensure that information  required  to  be
disclosed  by  us  in  the reports we file or  submit  under  the
Exchange  Act  is recorded, processed, summarized  and  reported,
within the time periods specified in applicable rules and forms.

       (b)  Changes in internal controls

         There   were   no  significant  changes  made   in   the
Partnership's  internal controls during the  most  recent  period
covered  by  this  report that have materially affected,  or  are
reasonably   likely  to  materially  affect,  the   Partnership's
internal control over financial reporting.


                   PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

        There are no material pending legal proceedings to  which
the Partnership is a party or of which the Partnership's property
is subject.

ITEM  2.UNREGISTERED  SALES  OF  EQUITY  SECURITIES  AND  USE  OF
        PROCEEDS

        (a)  During  the  period  covered  by  this  report,  the
Partnership  did  not  sell any equity securities  that  are  not
registered under the Securities Act of 1933.

       (b) Not applicable.

        (c) Pursuant to Section 7.7 of the Partnership Agreement,
each  Limited  Partner  has the right to  present  Units  to  the
Partnership  for  purchase by submitting notice to  the  Managing
General  Partner  during September of each  year.   The  purchase
price  of  the  Units  is  based on a formula  specified  in  the
Partnership  Agreement.  Units tendered to  the  Partnership  are
redeemed  on  October 1st of each year subject to  the  following
limitations.  The Partnership will not be obligated  to  purchase
in  any  year any number of Units that, when aggregated with  all
other  transfers of Units that have occurred since the  beginning
of  the  same  calendar  year (excluding Permitted  Transfers  as
defined  in the Partnership Agreement), would exceed  5%  of  the
total number of Units outstanding on January 1 of such year.   In
no event shall the Partnership be obligated to purchase Units if,
in  the  sole  discretion of the Managing General  Partner,  such
purchase   would   impair  the  capital  or  operation   of   the
Partnership.   During  the period covered  by  this  report,  the
Partnership did not purchase any Units.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

      None.

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

      None

ITEM 5.OTHER INFORMATION

      None.

                   PART II - OTHER INFORMATION
                           (Continued)

ITEM 6.EXHIBITS

    10.1   Assignment  and  Assumption  of  Purchase   and   Sale
    Agreement  dated September 11, 2006 between the  Partnership,
    AEI  Income  & Growth Fund XXII Limited Partnership  and  AEI
    Fund  Management,  Inc.  relating  to  the  Property  at  425
    Galleria Drive, Johnstown, Pennsylvania.

    10.2  Net  Lease Agreement dated September 21,  2006  between
    the  Partnership,  AEI  Income &  Growth  Fund  XXII  Limited
    Partnership and B.T. Woodlipp, Inc. relating to the  Property
    at 425 Galleria Drive, Johnstown, Pennsylvania.

    31.1  Certification  of Chief Executive  Officer  of  General
    Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a))  and
    Section 302 of the Sarbanes-Oxley Act of 2002.

    31.2  Certification  of Chief Financial  Officer  of  General
    Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a))  and
    Section 302 of the Sarbanes-Oxley Act of 2002.

    32    Certification  of  Chief Executive  Officer  and  Chief
    Financial Officer of General Partner pursuant to Section  906
    of the Sarbanes-Oxley Act of 2002.



                           SIGNATURES

        In  accordance with the requirements of the Exchange Act,
the  registrant caused this report to be signed on its behalf  by
the undersigned, thereunto duly authorized.


Dated:  November 6, 2006      AEI Income & Growth Fund XXI
                              Limited Partnership
                              By:  AEI Fund Management XXI, Inc.
                              Its: Managing General Partner


                              By: /s/ Robert P Johnson
                                      Robert P. Johnson
                                      President
                                      (Principal Executive Officer)


                              By: /s/ Patrick W Keene
                                      Patrick W. Keene
                                      Chief Financial Officer
                                      (Principal Accounting Officer)