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                        SECURITIES & EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

    (MARK ONE)

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

              For the quarterly period ended September 30, 1996

                                                    OR

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

              For the transition period from              to

                         Commission File Number: 0-13406


                          The CHALONE Wine Group, Ltd.

             (Exact name of Registrant as specified in its charter)


          California                                  94-1696731
(State or other jurisdiction of
 incorporation or organization)           (I.R.S. Employer Identification No.)

            621 Airpark Road
            Napa, California                             94558
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code: 707-254-4200

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                             Yes   X     No
                                 -----       -----

The number of shares  outstanding  of  Registrant's  Common Stock on October 31,
1996 was 7,611,604.


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<PAGE>




                          The CHALONE Wine Group, Ltd.

                         PART I. - FINANCIAL INFORMATION

     Item 1.  Financial Statements

         Incorporated herein is the following unaudited financial information:

              Consolidated Balance Sheets as of September 30, 1996, and December
              31 1995.

              Consolidated  Statements of  Operations  for the  three-month  and
              nine-month periods ended September 30, 1996 and 1995.

              Consolidated  Statements of Changes in Financial  Position for the
              three-month  and nine-month  periods ended  September 30, 1996 and
              1995.

              Notes to Consolidated Financial Statements.



<PAGE>
<TABLE>

                                                    The CHALONE Wine Group, Ltd.

                                                     CONSOLIDATED BALANCE SHEETS
                                                           (in thousands)

<CAPTION>
                                     ASSETS
                                                                                                   September 30,        December 31,
                                                                                                       1996                  1995
                                                                                                     --------              --------
<S>                                                                                                  <C>                   <C>     
Current assets
     Cash ..............................................................................             $     58              $     32
     Accounts receivable, less allowance for doubtful accounts
         of $34,709 and $25,550 ........................................................                6,244                 7,653
     Note receivable from officer ......................................................                 --                     100
     Inventories .......................................................................               26,922                27,499
     Prepaid expenses ..................................................................                  271                   199
     Deferred income taxes .............................................................                  167                   167
                                                                                                     --------              --------
         Total current assets ..........................................................               33,662                35,650
     Investment in Chateau Duhart-Milon ................................................               11,604                12,059
     Property, plant and equipment - net ...............................................               25,291                19,865
     Goodwill and trademarks, less amortization of $980,395 and
         $955,050 ......................................................................                3,072                 3,148
     Other assets ......................................................................                2,024                 1,847
                                                                                                     --------              --------
              Total assets .............................................................             $ 75,653              $ 72,569
                                                                                                     ========              ========

                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
     Bank lines of credit ..............................................................             $  7,442              $ 10,239
     Current maturities of long-term obligations .......................................                  772                   774
     Accounts payable and accrued liabilities ..........................................                3,076                 2,565
                                                                                                     --------              --------
         Total current liabilities .....................................................               11,290                13,578
Long-term obligations - less current maturities ........................................                8,235                 5,011
Convertible subordinated debentures ....................................................                8,500                 8,500
Deferred income taxes ..................................................................                2,078                 1,073
Minority interest ......................................................................                3,380                 3,025
Shareholders' equity
   Common stock ........................................................................               41,535                41,556
   Retained earnings (deficit) .........................................................                1,385                   (66)
   Cumulative foreign currency translation adjustment
                                                                                                         (750)                 (108)
                                                                                                     --------              --------
         Total shareholders' equity ....................................................               42,170                41,382
                                                                                                     --------              --------
         Total liabilities and shareholders' equity ....................................             $ 75,653              $ 72,569
                                                                                                     ========              ========

<FN>

                                             The accompanying notes are an integral part
                                              of the consolidated financial statements
</FN>
</TABLE>

                                       3
<PAGE>
<TABLE>

                                                    The CHALONE Wine Group, Ltd.


                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                          (unaudited)(in thousands, except per-share data)


<CAPTION>


                                                                          Three Months Ended                 Nine Months Ended
                                                                            September 30,                      September 30,
                                                                    -----------------------------      -----------------------------
                                                                       1996              1995              1996            1995
                                                                     --------          --------          --------          --------
<S>                                                                  <C>               <C>               <C>               <C>     
Gross revenues .............................................         $  8,207          $  5,380          $ 22,052          $ 17,214
     Less excise taxes .....................................              276               146               661               564
                                                                     --------          --------          --------          --------
Net revenues ...............................................            7,931             5,234            21,391            16,650
Cost of wines sold .........................................            4,774             3,299            13,116            10,973
                                                                     --------          --------          --------          --------
     Gross profit ..........................................            3,157             1,935             8,275             5,677
Operating expenses .........................................            1,448             1,238             4,444             3,725
                                                                     --------          --------          --------          --------
     Operating income ......................................            1,709               697             3,831             1,952
Other income (expense)
     Interest expense ......................................             (440)             (743)           (1,269)           (2,245)
     Other, net ............................................               14                15                 9               106
                                                                     --------          --------          --------          --------
                                                                         (426)             (728)           (1,260)           (2,139)
Equity in net income of Chateau Duhart-Milon
                                                                           40              --                 240              --
Minority interests .........................................             (192)              (11)             (355)             (183)
                                                                     --------          --------          --------          --------

   Income (loss) before income taxes .......................            1,131               (42)            2,456              (370)

Income tax benefit (expense) ...............................             (463)               13            (1,005)              149
                                                                     --------          --------          --------          --------
     Net income (loss) .....................................         $    668          $    (29)         $  1,451          $   (221)
                                                                     ========          ========          ========          ========

Net income (loss) per common share                                   $    .08          $   (.01)         $    .18          $   (.04)
Average number of shares used in income
   (loss) per share computation
                                                                        8,073             4,983             8,125             4,968


<FN>

                                             The accompanying notes are an integral part
                                              of the consolidated financial statements
</FN>
</TABLE>

                                       4
<PAGE>
<TABLE>

                                                    The CHALONE Wine Group, Ltd.

                                      CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
                                                      (unaudited)(in thousands)
<CAPTION>

                                                                                 Three Months Ended             Nine Months Ended
                                                                                    September 30,                 September 30,
                                                                              ----------------------------  ------------------------
                                                                                1996           1995           1996           1995
                                                                               -------        -------        -------        -------
<S>                                                                            <C>            <C>            <C>            <C>     
Cash flows from operating activities:
   Net earnings ........................................................       $   668        $   (29)       $ 1,451        $  (221)
   Non-cash transactions:
     Depreciation ......................................................           332            293            961            922
     Amortization ......................................................            28             37             89            113
     Equity in net income of Chateau
       Duhart-Milon (Duhart) ...........................................           (40)          --             (240)          --
     Increase in minority interest .....................................           192             10            355            183
     Loss (gain) on sale of
        equipment ......................................................            65             (8)            82            (29)
     Changes in:
       Deferred income taxes ...........................................           463            (14)         1,005           (149)
       Accounts receivable .............................................           826            581          1,508           (619)
       Inventories .....................................................        (1,590)           477            577          2,869
       Prepaid expenses and other assets ...............................          (305)          (120)          (262)          (187)
       Accounts payable and accrued expense.............................           724             93            511           (262)
                                                                               -------        -------        -------        -------
       Net cash provided (required by) operating
         activities ....................................................         1,363          1,320          6,037          2,620
                                                                               -------        -------        -------        -------
Cash flows from investing activities:
   Capital expenditures ................................................        (3,558)        (1,242)        (6,556)        (1,769)
     Proceeds from disposal of
       equipment .......................................................            38             47             87            125
       Investment in Duhart ............................................           (13)          --               54           --
                                                                               -------        -------        -------        -------
       Net cash used in investing activities............................        (3,533)        (1,195)        (6,415)        (1,644)
                                                                               -------        -------        -------        -------
Cash flows from financing activities:
   Net repayments under line of credit agreement........................          (547)          (143)        (2,797)          (682)
   Repayment of long-term debt .........................................           (72)           (86)          (510)          (328)
   Proceeds from long-term debt ........................................         2,782                         3,732
   Distribution to minority interest ...................................          --             --             --              (76)
   Proceeds from issuance of common stock ..............................            39              6             82             43
     Purchase and retirement of common stock............................          --             --             (103)          --
                                                                               -------        -------        -------        -------
     Net cash provided from financing activities........................         2,202           (223)           404         (1,043)
                                                                               -------        -------        -------        -------

Net increase (decrease) in cash ........................................            32            (98)            26            (67)
   Cash at beginning of period .........................................            26            101             32             70
                                                                               -------        -------        -------        -------
     Cash at end of period .............................................       $    58        $     3        $    58        $     3
                                                                               =======        =======        =======        =======
<FN>
                                             The accompanying notes are an integral part
                                              of the consolidated financial statements
</FN>
</TABLE>
                                       5
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Consolidated Financial Statements
         The   consolidated   balance  sheet  as  of  September  30,  1996,  the
consolidated  statement of operations for the three-month and nine-month periods
ended September 30, 1996 and 1995, and the consolidated  statement of changes in
financial  position for the three-month  and nine-month  periods then ended have
been prepared by the Company,  without audit. In the opinion of management,  all
adjustments  (which  include  only normal  recurring  adjustments)  necessary to
present fairly position, results of operations and changes in financial position
at September 30, 1996, and for all periods presented have been made.
         Certain  information  and  footnote  disclosures  normally  included in
financial  statements  prepared in accordance with generally accepted accounting
principles  have  been  condensed  or  omitted.   It  is  suggested  that  these
consolidated  financial  statements  be read in  conjunction  with the financial
statements  and notes  included in the  Company's  December  31,  1995,  audited
financial statements.

NOTE 2 - Seasonal Factors
         The results for the interim periods are not  necessarily  indicative of
the results to be expected for the year, due to seasonal factors.


                                       6


<PAGE>

<TABLE>

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

RESULTS OF OPERATIONS
         The following  table sets forth the percentage  relationship to revenue
of certain items in the Company's  statements of operations for the  three-month
and  nine-month  periods ended  September 30, 1996 and 1995,  and the percentage
change in such items between the comparable periods in those years.

<CAPTION>

                                    Three Months Ended September 30,          Nine Months Ended September 30,
                                ---------------------------------------   --------------------------------------
                                      Percentage          Percent               Percentage            Percent
                                    of Wine Sales          Change             of Wine Sales           Change
                                -----------------------   ----------      -----------------------   ------------
                                                            1995 vs.                                 1995 vs.
                                  1996         1995           1996          1996          1995         1996
                                ----------   ----------   -------------   ----------    ---------   ------------
<S>                               <C>          <C>           <C>            <C>          <C>
Wine sales................        100.0%       100.0%         51.5%         100.0%        100.0%        28.5%
Cost of wines sold........         60.2         63.0          44.7           61.3          65.9         19.5
                                ----------   ----------                   ----------    ---------
   Gross profit...........         39.8         37.0          63.2           38.7          34.1         45.7
Operating expenses........         18.3         23.7          17.0           20.8          22.4         19.3
                                ----------   ----------                   ----------    ---------
   Operating income.......         21.5         13.3         145.2           17.9          11.7         96.3
Other income (expense)
   Interest expense.......         (5.5)       (14.2)        (40.8)          (6.4)        (13.5)       (43.5)
   Other, net.............          0.2          0.3          (6.7)           -             0.6          -
Equity in net income......           .5          -             -              1.1           -            -
Minority interests........         (2.4)        (0.2)          -             (1.7)         (1.1)        94.0
   Income (loss) before income
    taxes.................         14.3         (0.8)          -             11.5          (2.2)         -
Income tax (benefit) expense
                                   (5.8)         0.2           -             (4.7)          0.9          -
                                ----------   ----------                   ----------    ---------
     Net income (loss)....          8.4%        (0.6)%         -              6.8%         (1.3)%)       -
                                ==========   ==========                   ==========    =========
</TABLE>

Revenues
         Net revenues were  $7,931,000 for the third quarter ended September 30,
1996, and $21,391,000 for the nine months then ended.  Sales for the three-month
and  nine-month  periods  increased  by 52%  and  29%,  respectively,  over  the
comparable  periods in 1995,  due to a combination  of unit  increases and price
increases across all of the Company's product lines.

Gross Profit
         Gross profit for the three-month and nine-month periods ended September
30, 1996, increased approximately 63% and 46%, respectively, over the comparable
periods in 1995.  These  increases were due primarily to the higher sales levels
mentioned   above.   Gross  profit  as  a  percentage  of  sales   increased  to
approximately  40% and 39% for the  three-month  and nine-month  periods in 1996
from  37%  and  34% in the  comparable  periods  in  1995.  The  increases  were
attributable to a change in product mix to higher priced wines with higher gross
profit margins coupled with selected price increases on certain of the Company's
wines. 

Operating Expenses
         Operating   expenses  include  selling,   general  and   administrative
expenses.   Operating  expenses  for  the  three-month  and  nine-month  periods
increased by 17% and 19%,  respectively,  from the  comparable  periods in 1995.
These  increases  are the result of  increased  selling  expenses  due to higher
selling levels discussed above.  Operating expenses as a percentage of sales for
the three-month and nine-month periods were 18%.

                                       7

<PAGE>

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

and 21%,  respectively,  compared  to 24% and 22% in the  comparable  periods in
1995. These decreases were due to selling and administrative expenses increasing
at a rate slower than increases in revenues.

Interest Expense
         Interest   expense  declined  41%  and  44%  for  the  three-month  and
nine-month periods in 1996, over the comparable periods in 1995. These decreases
were primarily  attributable to lower short-term borrowings made possible by the
addition of $4.5 million in new equity and the  conversion  of $12.4  million of
convertible  debentures to equity, both reflected in the fourth quarter of 1995,
coupled with increased cash flows  resulting from profits  generated  during the
periods covered. 

Equity in Net Income of Chateau Duhart-Milon
         Effective October 1, 1995, the Company exchanged essentially all of its
11.3%  ownership  interest in DBR for a 23.5% interest in Societe Civile Chateau
Duhart-Milon  (Duhart).  The  effect  of  this  transaction  was to  convert  an
essentially  passive  11.3%  interest  in DBR  into an  interest  in an  active,
operating vineyard and winery operation accounted for using the equity method of
accounting. The Company's 23.5% equity interest in Duhart-Milon's net income for
the  three-month  and nine-month  periods ended September 30, 1996, were $40,000
and $240,000, respectively.
         The   investment  in  Duhart  is   denominated  in  French  Francs  and
accordingly a reserve for currency translation is recorded in the equity section
of the balance sheet.  The reserve for the nine months ended September 30, 1996,
was  $750,000.  At November 11, 1996 that reserve had declined to  approximately
$524,000.

<TABLE>
Minority Interest
         The  Company  currently  has two  ventures in which there is a minority
interest. The "minority interest" in earnings (losses) of these ventures for the
periods ended September 30, 1996, consisted of the following:
<CAPTION>
                                                                                      Minority Interest in Earnings
                                                                                     ---------------------------------
                                                                                        3 Months          9 Months 
                                                                          Minority       Ended              Ended
Venture                                Minority Owner                        %       Sept 30, 1996       Sept 30, 1996
-------                                --------------                       ---      -------------       -------------
<S>                                    <C>                                  <C>      <C>                 <C>       
Edna Valley Vineyard (EVV)             Paragon Vineyard Co., Inc.           50.0%    $    159,892        $    304,351
Canoe Ridge Vineyard, LLC (CRV)
                                       Various                              49.5%          31,517             50,276
                                                                                     -------------       -------------
                                                                                     $    191,409        $   354,627
                                                                                     =============       =============

</TABLE>

         The "minority  interest"  amount for EVV  represents an increase of 45%
from the comparable  nine-month  period in 1995,  resulting from increased sales
and profits for the EVV Joint Venture.  Effective  January 1, 1996,  CanoeCo and
Canoe Ridge Winery (CRW)  merged into one new  Company,  CRV,  which the Company
owns 50.5%. CRW had its first (and only) complete year of operation in 1995, and
essentially  sold its entire vintage in that year. The Company believes that EVV
and CRV will continue to contribute  significantly to its income, and hence that
"minority interest" will continue, proportionately.

                                       8
<PAGE>


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

SEASONALITY
         The  Company's  wine sales from quarter to quarter are highly  variable
because the exact dates when wines are released for sale vary from year to year.
Sales are typically highest during the fourth quarter,  because of heavy holiday
sales and  because  most  wines  are  released  around  the end of the third and
beginning of the fourth quarters.

FINANCIAL CONDITION
         The  Company's   working  capital  increased  by  $300,000  during  the
nine-month  period ending  September 30, 1996, to $22,372,000,  due to increased
profits for the period.

         At  November  11,  1996,  the  Company  had  lines of  credit  totaling
$16,300,000 of which $7,016,000 had been drawn.

         The Company is not aware of any potential  impairments to its liquidity
and believes that its capital  resources,  including  those  resulting  from and
discussed in  "SIGNIFICANT  EVENT"  below,  are adequate to meet the current and
historic levels of capital expenditures and liquidity needs of the Company.

SIGNIFICANT EVENT
         On July 31, 1996, a wildfire damaged approximately 75% of its producing
acreage at the Carmenet  Vineyard in Sonoma  County.  The winery  structures and
barrel  inventory  were  untouched by the blaze and there were no injuries.  The
fire was caused by  electrical  origin  and  Pacific  Gas & Electric  Company of
California  has  publicly  acknowledged  responsibility.   The  damaged  acreage
consists of Cabernet Sauvignon, Merlot and Cabernet Franc grapes used for estate
bottled wines produced under the Carmenet  label.  Carmenet  currently  produces
approximately  38,000  cases of wine  annually  of which  approximately  40% are
estate bottled. Management is currently assessing the extent of damage caused by
the  fire  and  is  in  discussions  with  Pacific  Gas  &  Electric   regarding
compensation for losses suffered.




                                       9
<PAGE>


                          PART II. - OTHER INFORMATION

Item 6.       Exhibits and Reports on Form 8-K

     (a)  Exhibits.  Not applicable.

     (b)  Reports.  None.


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                             The CHALONE Wine Group, Ltd.


Dated:  November 14, 1996                    BY /s/ William L. Hamilton
                                               ------------------------
                                             William L. Hamilton
                                             Executive Vice President
                                             and Chief Financial Officer