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

                            FORM 10-Q

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

       For the quarterly period ended:  September 30, 2008

               Commission File Number:  000-29274


           AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
     (Exact name of registrant 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
                 (Registrant's telephone number)

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

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.                 [X] Yes    No

Indicate  by  check  mark  whether  the  registrant  is  a  large
accelerated filer, an accelerated filer, a non-accelerated filer,
or  a  smaller reporting company.  See the definitions of  "large
accelerated  filer," "accelerated filer" and  "smaller  reporting
company" in Rule 12b-2 of the Exchange Act.

   Large accelerated filer         Accelerated filer

   Non-accelerated filer           Smaller reporting company  [X]

Indicate by check mark whether the registrant is a shell  company
(as defined in Rule 12b-2 of the Exchange  Act).   Yes [X]  No



        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

                              INDEX


Part I - Financial Information

 Item 1. Financial Statements:

         Balance Sheet as of September 30, 2008 and December  31, 2007

         Statements for the Periods ended September 30, 2008 and 2007:

           Income

           Cash Flows

           Changes in Partners' Capital

         Notes to Financial Statements

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

 Item 3. Quantitative and Qualitative Disclosures About Market Risk

 Item 4T.Controls and Procedures

Part II - Other Information

 Item 1. Legal Proceedings

 Item 1A.Risk  Factors

 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, 2008 AND DECEMBER 31, 2007

                             ASSETS

                                                     2008           2007
CURRENT ASSETS:
  Cash and Cash Equivalents                      $ 4,001,754    $ 4,904,162

INVESTMENTS IN REAL ESTATE:
  Land                                             4,194,799      4,759,346
  Buildings and Equipment                         10,058,277      9,987,497
  Accumulated Depreciation                        (1,423,719)    (1,643,293)
                                                  -----------    -----------
                                                  12,829,357     13,103,550
  Real Estate Held for Sale                        1,212,625        159,557
                                                  -----------    -----------
      Net Investments in Real Estate              14,041,982     13,263,107
                                                  -----------    -----------
          Total Assets                           $18,043,736    $18,167,269
                                                  ===========    ===========

                       LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
  Payable to AEI Fund Management, Inc.           $    12,551    $     4,976
  Distributions Payable                              352,283        381,193
  Unearned Rent                                       36,420         36,286
                                                  -----------    -----------
      Total Current Liabilities                      401,254        422,455
                                                  -----------    -----------
PARTNERS' CAPITAL:
  General Partners                                    13,992         15,015
  Limited Partners, $1,000 per Unit;
    24,000 Units authorized and issued;
    22,779 Units outstanding                      17,628,490     17,729,799
                                                  -----------    -----------
      Total Partners' Capital                     17,642,482     17,744,814
                                                  -----------    -----------
        Total Liabilities and Partners' Capital  $18,043,736    $18,167,269
                                                  ===========    ===========

 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


                                 Three Months Ended      Nine Months Ended
                                9/30/08      9/30/07    9/30/08     9/30/07

RENTAL INCOME                $  289,632    $  223,256  $  844,737  $  663,712

EXPENSES:
   Partnership Administration -
     Affiliates                  54,963        56,327     167,809     166,554
   Partnership Administration
     and Property Management -
     Unrelated Parties            5,067         3,259      31,194      27,113
   Depreciation                 100,223        72,444     291,409     217,332
                              ----------    ----------  ----------  ----------
        Total Expenses          160,253       132,030     490,412     410,999
                              ----------    ----------  ----------  ----------

OPERATING INCOME                129,379        91,226     354,325     252,713

OTHER INCOME:
   Interest Income               19,067        35,938      52,333      78,395
                              ----------    ----------  ----------  ----------
INCOME FROM CONTINUING
   OPERATIONS                   148,446       127,164     406,658     331,108

Income from Discontinued
  Operations                     39,230     1,137,478     789,992   1,581,481
                              ----------    ----------  ----------  ----------
NET INCOME                   $  187,676    $1,264,642  $1,196,650  $1,912,589
                              ==========    ==========  ==========  ==========
NET INCOME ALLOCATED:
   General Partners          $    1,877    $   12,647  $   11,967  $   19,126
   Limited Partners             185,799     1,251,995   1,184,683   1,893,463
                              ----------    ----------  ----------  ----------
                             $  187,676    $1,264,642  $1,196,650  $1,912,589
                              ==========    ==========  ==========  ==========
INCOME PER LIMITED PARTNERSHIP UNIT:
   Continuing Operations     $     6.45    $     5.52  $    17.67  $    14.38
   Discontinued Operations         1.71         49.39       34.34       68.66
                              ----------    ----------  ----------  ----------
        Total                $     8.16    $    54.91  $    52.01  $    83.04
                              ==========    ==========  ==========  ==========
Weighted Average Units
  Outstanding                    22,779        22,802      22,779      22,802
                              ==========    ==========  ==========  ==========


 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 MONTHS ENDED SEPTEMBER 30


                                                     2008           2007

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                    $ 1,196,650    $ 1,912,589

   Adjustments to Reconcile Net Income to Net Cash
   Provided by Operating Activities:
     Depreciation                                    331,106        342,047
     Gain on Sale of Real Estate                    (635,909)    (1,170,293)
     Increase (Decrease) in Payable to
        AEI Fund Management, Inc.                      7,575        (46,155)
     Increase in Unearned Rent                           134          1,045
                                                  -----------    -----------
        Total Adjustments                           (297,094)      (873,356)
                                                  -----------    -----------
        Net Cash Provided By
           Operating Activities                      899,556      1,039,233
                                                  -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Investments in Real Estate                     (3,629,090)             0
   Proceeds from Sale of Real Estate               3,155,018      3,889,014
                                                  -----------    -----------
        Net Cash Provided By (Used For)
           Investing Activities                     (474,072)     3,889,014
                                                  -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Decrease in Distributions Payable                 (28,910)       (25,455)
   Distributions to Partners                      (1,298,982)    (1,390,696)
                                                  -----------    -----------
        Net Cash Used For
           Financing Activities                   (1,327,892)    (1,416,151)
                                                  -----------    -----------
NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                             (902,408)     3,512,096

CASH AND CASH EQUIVALENTS, beginning of period     4,904,162      1,588,082
                                                  -----------    -----------
CASH AND CASH EQUIVALENTS, end of period         $ 4,001,754    $ 5,100,178
                                                  ===========    ===========

 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 NINE MONTHS ENDED SEPTEMBER 30


                                                                   Limited
                                                                 Partnership
                             General     Limited                    Units
                             Partners    Partners      Total     Outstanding


BALANCE, December 31, 2006  $ 11,566   $17,388,339   $17,399,905   22,802.45

  Distributions              (13,907)   (1,376,789)   (1,390,696)

  Net Income                  19,126     1,893,463     1,912,589
                             --------   -----------   -----------  ----------
BALANCE, September 30, 2007 $ 16,785   $17,905,013   $17,921,798   22,802.45
                             ========   ===========   ===========  ==========


BALANCE, December 31, 2007  $ 15,015   $17,729,799   $17,744,814   22,779.11

  Distributions              (12,990)   (1,285,992)   (1,298,982)

  Net Income                  11,967     1,184,683     1,196,650
                             --------   -----------   -----------  ----------
BALANCE, September 30, 2008 $ 13,992   $17,628,490   $17,642,482   22,779.11
                             ========   ===========   ===========  ==========


 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, 2008

(1)  The  condensed  statements included herein have been  prepared
     by  the  registrant, 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  registrant
     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
     registrant'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  related to discontinued  operations  in  the
     prior  period's financial statements have been  reclassified
     to  conform  to  2008 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 -

     On  January  31,  2008,  the  Partnership  purchased  a  54%
     interest  in  a Best Buy store in Eau Claire, Wisconsin  for
     $3,629,090.  The property is leased to Best Buy Stores, L.P.
     under a Lease Agreement with a remaining primary term of  10
     years  and initial annual rent of $256,001 for the  interest
     purchased.   The  remaining interests in the  property  were
     purchased by AEI Income & Growth Fund 23 LLC and AEI  Income
     & Growth Fund 26 LLC, affiliates of the Partnership.

     Subsequent to September 30, 2008, the Partnership  purchased
     a  55% interest in a Fresenius Medical Center in Shreveport,
     Louisiana  for  approximately $1,340,000.  The  property  is
     leased  to  Bio-Medical Applications of  Louisiana,  LLC,  a
     subsidiary of Fresenius Medical Care Holdings, Inc., under a
     Lease  Agreement with a remaining primary term of 9.8  years
     and  initial  annual  rent  of  $102,520  for  the  interest
     purchased.   The  remaining interest  in  the  property  was
     purchased  by AEI Income & Growth Fund 24 LLC, an  affiliate
     of the Partnership.

     Subsequent to September 30, 2008, the Partnership  issued  a
     commitment to purchase a 63% interest in a parcel of land in
     Rapid   City,  South  Dakota  for  approximately   $598,500.
     Simultaneous with the purchase of the land, the  Partnership
     will  enter  into  a Development Financing  Agreement  under
     which  the Partnership will advance funds to Brad  and  Dad,
     LLC  for the construction of a Tractor Supply Company  store
     on  the site.  The purchase price, including the cost of the
     land,   will  be  approximately  $1,915,000.  The  remaining
     interest  in the property will be purchased by AEI Income  &
     Growth Fund 27 LLC, an affiliate of the Partnership.

     The  property  is leased to Tractor Supply Company  under  a
     Lease  Agreement with a primary term of 15 years and initial
     annual   rent  of  $141,750  for  the  interest   purchased.
     Pursuant to the Lease, the tenant will commence paying  rent
     on  the  day the store opens for business, which is expected
     to  be  in May 2009.  Pursuant to the development agreement,
     for the period from the day the land is purchased to the day
     that  the  tenant commences paying rent, Brad and  Dad,  LLC
     will  pay the Partnership interest at a rate of 6.9% on  the
     purchase  price  of  the land and the amounts  advanced  for
     construction  of the building.  Pursuant to the  Lease,  any
     improvements to the land during the term of the Lease become
     the property 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 three months of 2007, the Partnership  sold
     its remaining 10.0242% interest in the Eckerd drug store  in
     Utica,  New York, in two separate transactions, to unrelated
     third  parties.   The Partnership received  total  net  sale
     proceeds  of  $509,303, which resulted  in  a  net  gain  of
     $59,412.   The cost and related accumulated depreciation  of
     the interests sold was $463,144 and $13,253, respectively.

     On  April  12,  2007, the Partnership sold 12.1042%  of  the
     KinderCare  daycare  center  in Kimberly,  Wisconsin  to  an
     unrelated  third party.  The Partnership received  net  sale
     proceeds  of  $236,188, which resulted  in  a  net  gain  of
     $92,257.   The cost and related accumulated depreciation  of
     the interest sold was $164,404 and $20,473, respectively.

     On  January  15,  2008, the Partnership sold  its  remaining
     13.4184%  interest  in  the  KinderCare  daycare  center  in
     Kimberly,  Wisconsin  to  an  unrelated  third  party.   The
     Partnership  received net sale proceeds of  $258,749,  which
     resulted  in  a net gain of $99,192.  The cost  and  related
     accumulated  depreciation of the interest sold was  $182,253
     and  $22,696,  respectively.   At  December  31,  2007,  the
     property was classified as Real Estate Held for Sale with  a
     book value of $159,557.

     On  August  30,  2007,  the  Partnership  sold  the  Champps
     Americana  restaurant in San Antonio, Texas to  the  tenant.
     The  Partnership received net sale proceeds  of  $3,143,523,
     which resulted in a net gain of $1,018,624.  At the time  of
     sale,  the  cost  and related accumulated  depreciation  was
     $2,833,357 and $708,458, respectively.

     In  March 2008, the Partnership entered into an agreement to
     sell  the Johnny Carino's restaurant in Laredo, Texas to  an
     unrelated  third  party.  On May 15, 2008, the  sale  closed
     with  the  Partnership receiving net proceeds of $2,896,269,
     which  resulted in a net gain of $536,717.  At the  time  of
     sale,  the  cost  and related accumulated  depreciation  was
     $2,605,079 and $245,527, respectively.

     The Partnership is attempting to sell the KinderCare daycare
     center  in  Ballwin, Missouri.  At September 30,  2008,  the
     property was classified as Real Estate Held for Sale with  a
     book value of $1,212,625.

     During  the  first  nine  months  of  2008  and  2007,   the
     Partnership  distributed net sale proceeds of  $407,134  and
     $306,354  to  the Limited and General Partners  as  part  of
     their quarterly distributions, which represented a return of
     capital  of $17.70 and $13.29 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
                                9/30/08      9/30/07    9/30/08     9/30/07

 Rental Income                 $ 39,631   $  157,895   $ 202,032   $  539,358
 Property Management Expenses      (401)      (1,094)     (8,252)      (3,455)
 Depreciation                         0      (37,947)    (39,697)    (124,715)
 Gain on Disposal of Real Estate      0    1,018,624     635,909    1,170,293
                                --------   ----------   ---------   ----------
  Income from Discontinued
    Operations                 $ 39,230   $1,137,478   $ 789,992   $1,581,481
                                ========   ==========   =========   ==========

(7)  Recently Issued Accounting Pronouncements -

     In  December 2007, the Financial Accounting Standards  Board
     issued  Statement  of  Financial  Accounting  Standards  No.
     141(R)  ("SFAS 141(R)"), Business Combinations.  SFAS 141(R)
     requires,  among other things, the expensing of acquisition-
     related transaction costs.  Management anticipates that SFAS
     141(R) will be effective for property acquisitions completed
     on  or after January 1, 2009.  Management is evaluating  the
     effect  that  the adoption of SFAS 141(R) will have  on  the
     Partnership's results of operations, financial position, and
     the related disclosures.

     In  September 2006, the Financial Accounting Standards Board
     issued  Statement of Financial Accounting Standards No.  157
     ("SFAS  157"),  Fair Value Measurements.  SFAS  157  defines
     fair  value,  establishes  a framework  for  measuring  fair
     value,   and   expands   disclosures   about   fair    value
     measurements.  The statement is effective for (1)  financial
     assets  and  liabilities in financial statements issued  for
     fiscal  years beginning after November 15, 2007, and interim
     periods  within  those  fiscal years and  (2)  certain  non-
     financial  assets  and  liabilities in financial  statements
     issued  for fiscal years beginning after November 15,  2008,
     and interim periods within those fiscal years.  When testing
     for  recoverability of properties under SFAS 144, Accounting
     for   Impairment  or  Disposal  of  Long-Lived  Assets,  the
     provisions  of  this statement are used when comparing  fair
     value  to  carrying  value.  Management  is  evaluating  the
     effect  that  the  adoption of SFAS 157  will  have  on  the
     Partnership's results of operations, financial position, and
     the related disclosures.

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

        This  section contains "forward looking statements" 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, the
sufficiency  of  cash  to  meet  operating  expenses,  rates   of
distribution,  and  other  matters.   These,  and  other  forward
looking  statements,  should 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
     effects 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.


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  cost   (including   capitalized
acquisition  expenses).   The Partnership  anticipates  that  for
acquisitions  completed on or after January 1, 2009, acquisition-
related  transaction  costs will be expensed  as  incurred  as  a
result  of  the  adoption  of Statement of  Financial  Accounting
Standards  No.  141(R), Business Combinations.   The  Partnership
tests long-lived assets for recoverability when events or changes
in  circumstances  indicate that the carrying value  may  not  be
recoverable.   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.   Changes
in  these  assumptions or analysis may cause material changes  in
the carrying value of the properties.


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

        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, 2008 and 2007, the
Partnership  recognized rental income from continuing  operations
of  $844,737 and $663,712, respectively.  In 2008, rental  income
increased  due  to  additional rent received  from  one  property
acquisition in 2008 and rent increases on three properties.

       For the nine months ended September 30, 2008 and 2007, the
Partnership  incurred  Partnership administration  expenses  from
affiliated parties of $167,809 and $166,554, 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  $31,194 and $27,113, 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, 2008 and 2007, the
Partnership  recognized interest income of $52,333  and  $78,395,
respectively.   Interest  income decreased  due  to  lower  money
market  interest rates in 2008, when compared to the same  period
in 2007.

        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  of
the  property  to discontinued operations.  For the  nine  months
ended September 30, 2008, the Partnership recognized income  from
discontinued  operations of $789,992, representing rental  income
less  property management expenses and depreciation  of  $154,083
and  gain  on disposal of real estate of $635,909.  For the  nine
months  ended  September  30,  2007, the  Partnership  recognized
income  from  discontinued operations of $1,581,481, representing
rental  income less property management expenses and depreciation
of $411,188 and gain on disposal of real estate of $1,170,293.


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

        During  the  first three months of 2007, the  Partnership
sold its remaining 10.0242% interest in the Eckerd drug store  in
Utica, New York, in two separate transactions, to unrelated third
parties.   The  Partnership received total net sale  proceeds  of
$509,303, which resulted in a net gain of $59,412.  The cost  and
related  accumulated  depreciation  of  the  interests  sold  was
$463,144 and $13,253, respectively.

        On  April 12, 2007, the Partnership sold 12.1042% of  the
KinderCare daycare center in Kimberly, Wisconsin to an  unrelated
third  party.   The  Partnership received net  sale  proceeds  of
$236,188, which resulted in a net gain of $92,257.  The cost  and
related  accumulated  depreciation  of  the  interest  sold   was
$164,404 and $20,473, respectively.

        On  January 15, 2008, the Partnership sold its  remaining
13.4184%  interest in the KinderCare daycare center in  Kimberly,
Wisconsin to an unrelated third party.  The Partnership  received
net  sale proceeds of $258,749, which resulted in a net  gain  of
$99,192.   The cost and related accumulated depreciation  of  the
interest  sold  was  $182,253  and  $22,696,  respectively.    At
December  31,  2007, the property was classified as  Real  Estate
Held for Sale with a book value of $159,557.

        On  August  30,  2007, the Partnership sold  the  Champps
Americana  restaurant in San Antonio, Texas to the  tenant.   The
Partnership  received  net  sale proceeds  of  $3,143,523,  which
resulted  in a net gain of $1,018,624.  At the time of sale,  the
cost  and  related  accumulated depreciation was  $2,833,357  and
$708,458, respectively.

        In  March 2008, the Partnership entered into an agreement
to  sell  the Johnny Carino's restaurant in Laredo, Texas  to  an
unrelated third party.  On May 15, 2008, the sale closed with the
Partnership receiving net proceeds of $2,896,269, which  resulted
in  a  net  gain of $536,717.  At the time of sale, the cost  and
related  accumulated  depreciation was $2,605,079  and  $245,527,
respectively.

        The  Partnership  is  attempting to sell  the  KinderCare
daycare center in Ballwin, Missouri.  At September 30, 2008,  the
property was classified as Real Estate Held for Sale with a  book
value of $1,212,625.

        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.


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

Liquidity and Capital Resources

        During  the  nine months ended September  30,  2008,  the
Partnership's  cash balances decreased $902,408 as  a  result  of
cash  used  to purchase property and distributions  paid  to  the
Partners  in  excess of cash generated from operating activities,
which  were partially offset by cash generated from the  sale  of
property.   During the nine months ended September 30, 2007,  the
Partnership's cash balances increased $3,512,096 as a  result  of
cash  generated  from the sale of property, which  was  partially
offset  by distributions paid to the Partners in excess  of  cash
generated from operating activities.

        Net  cash provided by operating activities decreased from
$1,039,233 in 2007 to $899,556 in 2008 as a result of a  decrease
in  total  rental and interest income in 2008 and an increase  in
Partnership  administration and property management  expenses  in
2008,  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, 2008 and 2007, the Partnership generated cash  flow
from  the  sale  of  real  estate of $3,155,018  and  $3,889,014,
respectively.  During the nine months ended September  30,  2008,
the  Partnership expended $3,629,090 to invest in real properties
(inclusive of acquisition expenses) as the Partnership reinvested
cash generated from property sales.

        On  January  31,  2008, the Partnership purchased  a  54%
interest  in  a  Best  Buy  store in Eau  Claire,  Wisconsin  for
$3,629,090.   The  property is leased to Best  Buy  Stores,  L.P.
under a Lease Agreement with a remaining primary term of 10 years
and  initial annual rent of $256,001 for the interest  purchased.
The  remaining  interests in the property were purchased  by  AEI
Income & Growth Fund 23 LLC and AEI Income & Growth Fund 26  LLC,
affiliates of the Partnership.

         Subsequent   to  September  30,  2008,  the  Partnership
purchased  a  55%  interest  in  a Fresenius  Medical  Center  in
Shreveport, Louisiana for approximately $1,340,000.  The property
is  leased  to  Bio-Medical Applications  of  Louisiana,  LLC,  a
subsidiary  of  Fresenius Medical Care Holdings,  Inc.,  under  a
Lease  Agreement with a remaining primary term of 9.8  years  and
initial annual rent of $102,520 for the interest purchased.   The
remaining interest in the property was purchased by AEI Income  &
Growth Fund 24 LLC, an affiliate of the Partnership.

       Subsequent to September 30, 2008, the Partnership issued a
commitment  to  purchase a 63% interest in a parcel  of  land  in
Rapid    City,   South   Dakota   for   approximately   $598,500.
Simultaneous with the purchase of the land, the Partnership  will
enter  into  a  Development Financing Agreement under  which  the
Partnership  will  advance funds to Brad and  Dad,  LLC  for  the
construction of a Tractor Supply Company store on the site.   The
purchase  price,  including  the  cost  of  the  land,  will   be
approximately $1,915,000. The remaining interest in the  property
will  be  purchased  by  AEI Income &  Growth  Fund  27  LLC,  an
affiliate of the Partnership.


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

        The property is leased to Tractor Supply Company under  a
Lease  Agreement  with  a primary term of 15  years  and  initial
annual rent of $141,750 for the interest purchased.  Pursuant  to
the  Lease, the tenant will commence paying rent on the  day  the
store  opens for business, which is expected to be in  May  2009.
Pursuant  to the development agreement, for the period  from  the
day  the  land is purchased to the day that the tenant  commences
paying  rent, Brad and Dad, LLC will pay the Partnership interest
at  a  rate  of  6.9% on the purchase price of the land  and  the
amounts  advanced for construction of the building.  Pursuant  to
the  Lease, any improvements to the land during the term  of  the
Lease become the property 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 week 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, 2008 and 2007, the
Partnership  declared distributions of $1,298,982 and $1,390,696,
respectively, which were distributed 99% to the Limited  Partners
and  1%  to the General Partners.  The Limited Partners  received
distributions  of  $1,285,992  and  $1,376,789  and  the  General
Partners  received distributions of $12,990 and $13,907  for  the
periods, respectively.  In 2008, distributions were lower due  to
a  decrease in the regular distribution rate per Unit,  effective
January  1,  2008.  In June and September 2007,  the  Partnership
declared  special distributions of net sale proceeds  of  $70,707
and   $118,182,  respectively.   In  March  and  June  2008,  the
Partnership  declared special distributions of net sale  proceeds
of $58,586 and $176,768, respectively.

        During  the  first  nine months of  2008  and  2007,  the
Partnership  distributed  net  sale  proceeds  of  $407,134   and
$306,354  to  the Limited and General Partners as part  of  their
quarterly distributions, which represented a return of capital of
$17.70  and  $13.29  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.

        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.


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

       During 2008, the Partnership did not redeem any Units from
the Limited Partners.  During 2007, two Limited Partners redeemed
a  total of 23.34 Partnership Units for $9,445 in accordance with
the  Partnership Agreement.  The Partnership acquired these Units
using Net Cash Flow from operations.  In prior years, a total  of
58  Limited  Partners  redeemed 1,197.55  Partnership  Units  for
$949,024.    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 $96  in
2007.

       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.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES.

       (a)  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  our  disclosure
controls  and procedures (as defined in Rule 13a-15(e) under  the
Securities  Exchange  Act of 1934 (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, our disclosure controls  and
procedures  were effective in ensuring that information  required
to be disclosed by us in the reports that we file or submit under
the  Exchange Act is recorded, processed, summarized and reported
within  the time periods specified in applicable rules and  forms
and  that  such  information is accumulated and  communicated  to
management,  including the President and Chief Financial  Officer
of  the  Managing General Partner, in a manner that allows timely
decisions regarding required disclosure.

       (b)  Changes in Internal Control Over Financial Reporting.

        During  the  most recent period covered by  this  report,
there  has  been no change in our internal control over financial
reporting  (as defined in Rule 13a-15(f) under the Exchange  Act)
that  has  materially  affected,  or  is  reasonably  likely   to
materially affect, our 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 1A. RISK FACTORS.

       Not applicable.

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

       (a) None.

       (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

    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

        Pursuant  to the requirements of the Securities  Exchange
Act  of  1934, the registrant has duly caused this report  to  be
signed   on   its  behalf  by  the  undersigned  thereunto   duly
authorized.


Dated:  November 7, 2008      AEI Income & Growth Fund XXI
                              Limited Partnership
                              By:  AEI Fund Management XXI, Inc.
                              Its: Managing General Partner


                              By: ROBERT P JOHNSON
                                  ROBERT P JOHNSON
                                  President
                                  (Principal Executive Officer)


                              By: PATRICK W KEENE
                                  PATRICK W KEENE
                                  Chief Financial Officer
                                  (Principal Accounting Officer)