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

                                      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 27, 1998

                                         OR

[  ] Transition report pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934


                          Commission File Number:  0-20716



                                  TACO CABANA, INC.
               (Exact name of registrant as specified in its charter)

            DELAWARE                       74-2201241
(State or other jurisdiction of         (I.R.S. Employer
 incorporation or organization)      Identification Number)

                             8918 Tesoro Dr., Suite 200
                             San Antonio, Texas   78217
                      (Address of principal executive offices)

                                   (210) 804-0990
                (Registrant's telephone number, including area code)





          Indicate by check mark whether the registrant (1) has filed all
     reports required to be filed by Section 13 or 15(d) of the Securities
     Exchange Act of 1934 during the preceding 12 months (or for 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 the number of shares outstanding of each of the issuer's
     classes of common stock, as of the latest practicable date:

                 Class       Outstanding at October 30, 1998
              Common Stock          13,633,150 shares<PAGE>


                                  TACO CABANA, INC.

                                        INDEX


                                                                        Page
                                                                       Number

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

  Condensed Consolidated Balance Sheets at September 27, 1998
    and December 29, 1997                                                  2

  Condensed Consolidated Statements of Operations for the Thirteen Weeks
    Ended September 27, 1998 and September 28, 1997                        3

  Condensed Consolidated Statements of Operations for the Thirty-nine weeks
    Ended September 27, 1998 and September 28, 1997                        4

  Condensed Consolidated Statements of Cash Flows for the Thirty-nine weeks
    Ended September 27, 1998 and September 28, 1997                        5

  Notes to Condensed Consolidated Financial Statements                    6-7


Item 2.  Management's Discussion and Analysis of Financial Condition and
  Results of Operations                                                  8-16


PART II.  OTHER INFORMATION

Items 1, 2, 3 and 5 have been omitted since the registrant has no reportable
  events in relation to the items

Item 4. Submission of Matters to a Vote of Security Holders               17

Item 6. Exhibits and Reports on Form 8-K                                  17

Signature                                                                 17
















                                  TACO CABANA, INC.
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                     (UNAUDITED)
                                          December 28,September 27,
                                              1997        1998    
                                          ----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..............    $ 339,000   $ 803,000
Receivables, net.......................      502,000     316,000
Inventory..............................    2,105,000   2,287,000
Prepaid expenses.......................    1,704,000   3,616,000
Federal income taxes receivable........      200,000     200,000
                                         ----------- -----------
Total current assets...................    4,850,000   7,222,000

PROPERTY AND EQUIPMENT, net............   59,540,000  68,784,000
NOTES RECEIVABLE.......................      344,000     292,000
INTANGIBLE ASSETS, net.................   11,293,000  11,864,000
OTHER ASSETS...........................      233,000     204,000
                                         ----------- -----------
TOTAL..................................  $76,260,000 $87,366,000
                                         =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................   $4,430,000  $3,838,000
Accrued liabilities....................    6,266,000   6,046,000
Current maturities of long-term debt 
and capital leases.....................    1,573,000   2,105,000
Line of credit.........................    4,223,000   4,270,000
                                         ----------- -----------
Total current liabilities..............   16,492,000  16,259,000

LONG-TERM OBLIGATIONS, net of current maturities:

Capital leases.........................    2,357,000   2,196,000
Long-term debt.........................   11,170,000  19,774,000
                                         ----------- -----------
Total long-term obligations............   13,527,000  21,970,000

ACQUISITION AND CLOSED RESTAURANT 
LIABILITIES............................    9,126,000   9,433,000
DEFERRED LEASE PAYMENTS................      702,000     771,000
STOCKHOLDERS' EQUITY:
Common stock...........................      157,000     157,000
Additional paid-in capital.............   97,095,000  97,315,000
Retained deficit.......................  (57,278,000)(49,230,000)
Treasury stock, at cost (871,937 shares
 at December 28, 1997 and 1,862,437 
 shares at September 27, 1998).........   (3,561,000) (9,309,000)
                                         ----------- -----------
  Total stockholders' equity...........   36,413,000  38,933,000
                                         ----------- -----------
TOTAL..................................  $76,260,000 $87,366,000
                                         =========== ===========


              See Notes to Condensed Consolidated Financial Statements.



                                    TACO CABANA, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                     (UNAUDITED)


                                         For the Thirteen Weeks Ended     
                                         ----------------------------
                                          September 28,September 27,
                                              1997        1998    
                                          ------------ ------------
REVENUES:
Restaurant sales..........................  $34,967,000 $36,176,000
Franchise fees and royalty income.........       84,000      94,000
                                            ----------- -----------
Total revenues............................   35,051,000  36,270,000
                                            ----------- -----------
COSTS AND EXPENSES:
Restaurant cost of sales..................   10,873,000  11,102,000
Labor.....................................    9,794,000   9,599,000
Occupancy.................................    2,123,000   1,966,000
Other restaurant operating costs..........    6,899,000   6,259,000
General and administrative................    1,515,000   1,911,000
Depreciation, amortization and restaurant 
  opening costs...........................    2,698,000   1,995,000
                                            ----------- -----------
Total costs and expenses..................   33,902,000  32,832,000
                                            ----------- -----------
INCOME FROM OPERATIONS....................    1,149,000   3,438,000
                                            ----------- -----------    
INTEREST EXPENSE, NET.....................     (256,000)   (543,000)
                                            ----------- -----------
INCOME BEFORE INCOME TAXES................      893,000   2,895,000

PROVISION FOR INCOME TAXES................     (331,000)          -
                                            ----------- -----------
NET INCOME................................     $562,000  $2,895,000
                                            =========== ===========
BASIC EARNINGS PER SHARE..................     $   0.04  $     0.20
                                            =========== ===========
BASIC WEIGHTED SHARES OUTSTANDING.........   15,036,811  14,186,259     
                                            =========== ===========
DILUTED EARNINGS PER SHARE................     $   0.04  $     0.20
                                            =========== ===========
DILUTED WEIGHTED SHARES OUTSTANDING.......   15,108,018  14,305,200 
                                            =========== ===========


              See Notes to Condensed Consolidated Financial Statements.







                                  TACO CABANA, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                     (UNAUDITED)


                                        For the Thirty-Nine weeks Ended     
                                        -------------------------------
                                          September 28,September 27,
                                              1997         1998    
                                          ------------ ------------
REVENUES:
Restaurant sales.......................... $99,171,000 $104,704,000
Franchise fees and royalty income.........     267,000      265,000
                                           ----------- ------------
Total revenues............................  99,438,000  104,969,000
                                           ----------- ------------
COSTS AND EXPENSES:
Restaurant cost of sales..................   30,607,000  31,723,000
Labor.....................................   27,173,000  28,009,000
Occupancy.................................    6,222,000   5,830,000
Other restaurant operating costs..........   18,650,000  18,355,000
General and administrative................    5,089,000   5,777,000
Depreciation, amortization and restaurant 
  opening costs...........................    7,758,000   5,837,000
                                            ----------- -----------
Total costs and expenses..................   95,499,000  95,531,000
                                            ----------- -----------
INCOME FROM OPERATIONS....................    3,939,000   9,438,000
                                            ----------- -----------
INTEREST EXPENSE, NET.....................     (772,000) (1,389,000)

INCOME BEFORE FOR INCOME TAXES............    3,167,000   8,049,000
                                            ----------- -----------
PROVISION FOR INCOME TAXES................   (1,172,000)          -
                                            ----------- -----------
NET INCOME................................   $1,995,000  $8,049,000
                                            =========== ===========
BASIC EARNINGS PER SHARE..................   $     0.13  $     0.55
                                            =========== ===========
BASIC WEIGHTED SHARES OUTSTANDING.........   15,474,687  14,593,555  
                                            =========== ===========
DILUTED EARNINGS PER SHARE................   $     0.13  $     0.55
                                            =========== ===========
DILUTED WEIGHTED SHARES OUTSTANDING.......   15,555,680  14,746,499
                                            =========== ===========


              See Notes to Condensed Consolidated Financial Statements.








                                   TACO CABANA, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                     (UNAUDITED)

                                        For the Thirty-Nine weeks Ended
                                        -------------------------------
                                          September 28,September 27,
                                              1997         1998    
                                         ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $1,995,000 $8,049,000
Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization.........  7,758,000  5,375,000
    Deferred income taxes.................  2,313,000          -
    Capitalized interest..................   (88,000)    (94,000)
    Deferred lease payments...............  (114,000)     69,000
    Changes in operating working capital 
    items.................................(2,188,000) (2,637,000)
                                          ---------- -----------
Net cash provided by operating activities. 9,676,000  10,762,000
                                          ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......(12,838,000)(16,987,000)
Proceeds from the sale of property 
 and equipment...........................  1,379,000   3,195,000
                                         ----------- -----------   
Net cash used for investing activities...(11,459,000)(13,792,000)
                                         ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
  and draws on line of credit............ 13,173,000  11,130,000
Principal payments under long-term debt 
  and line of credit..................... (8,213,000) (1,967,000)
Principal payments under capital leases..   (146,000)   (141,000)
Purchase of treasury stock............... (3,561,000) (5,748,000)
Exercise of stock options................          -     220,000
                                         ----------- -----------
Net cash provided by financing activities  1,253,000   3,494,000
                                         ----------- -----------
NET (DECREASE) INCREASE IN CASH..........   (530,000)    464,000

CASH AND CASH EQUIVALENTS, beginning of 
  period.................................    748,000     339,000
                                          ---------- -----------
CASH AND CASH EQUIVALENTS, end of period.   $218,000    $803,000
                                          ========== ===========



              See Notes to Condensed Consolidated Financial Statements.






                                   TACO CABANA, INC.
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.  Basis of Presentation

Principles of Consolidation  - The consolidated  financial statements include 
all accounts of Taco  Cabana, Inc. and  its wholly-owned  subsidiaries (the  
Company).  All significant intercompany balances and transactions have been 
eliminated.

The unaudited Condensed Consolidated Financial Statements include all 
adjustments, consisting of  normal,  recurring  adjustments and  accruals,  
which  the  Company considers necessary for fair presentation of financial 
position and the results of operations for the periods presented. Certain 
information and footnote disclosures normally included in  financial 
statements prepared  in accordance with  generally accepted accounting  
principles  have  been  condensed  or  omitted.  The  interim financial 
statements  should be  read in  conjunction  with the  Company's  Annual
Report on Form 10-K for the year ended December 28, 1997.

Recently Issued Accounting Pronouncements: In April 1998, the Accounting 
Standards Executive Committee  of the  American Institute  of Certified  Public 
Accountants (AICPA) issued Statement  of Position 98-5,  "Reporting on the  
Costs of  Start-Up Activities".  The accounting standard requires entities to
expense as incurred all start-up and preopening costs that are  not otherwise 
capitalizable as  long-lived assets. The  accounting standard  is effective  for
fiscal  years beginning  after December 15, 1998, with earlier application  
encouraged.  The Company adopted  the accounting standard during the first 
quarter of 1998. The cumulative effect of the change in the accounting principle
is not material to the results of operations or financial position of the 
Company.


2.  Earnings per Share

Basic earnings  per share  was computed  by dividing  income available  to  
common stockholders by the weighted average number  of common shares 
outstanding for  the reporting period.  Diluted earnings per share reflects the 
potential dilution that could occur if securities or other contracts to issue
common stock were  exercised or converted into common stock.   Outstanding stock
options issued by the  Company represent the only dilutive effect reflected in
diluted weighted average  shares.  All earnings per  share amounts  for all 
periods  have been  presented, and  where necessary, restated to conform to the 
Statement of Financial Accounting  Standards No. 128, Earnings per Share.

The following table sets forth the  computation of basic and diluted earnings  
per share:

                              13 Weeks Ended              39 Weeks Ended    
                              --------------              --------------
                        September 28,September 27,   September 28,September 27,
                             1997        1998             1997      1998   
                        ------------ ------------    ------------ ------------

Numerator for basic and 
diluted earnings per 
share - net income.....  $562,000   $2,895,000         $1,995,000  $8,049,000

Denominator for basic
earnings per share:
  Weighted-average
  shares............... 15,036,811  14,186,259         15,474,687  14,593,555

Effect of dilutive 
securities:
  Employee stock options    71,207     118,941             80,993     152,944
                        ----------  ----------         ----------  ----------

Denominator for diluted 
earnings per share: Adjusted 
weighted-average and assumed
  conversions.........  15,108,018  14,305,200         15,555,680  14,746,499
                       ===========  ==========         ==========  ==========

Basic earnings 
  per share........... $     0.04   $     0.20         $     0.13  $     0.55
                       ==========   ==========         ==========  ==========

Diluted earnings
 per share............ $     0.04   $     0.20         $     0.13  $     0.55
                       ==========   ==========         ==========  ==========

            

3.   Supplemental Disclosure of Cash Flow Information


                                     Thirty-nine weeks Ended
                                     -----------------------
                                    September 28, September 27,
                                    ------------  ------------
                                       1997          1998
                                    ------------  ------------
                                    (Unaudited)  (Unaudited)

    Cash paid for interest ......... $ 890,000   $1,313,000 
    Interest capitalized on      
      construction costs ...........    88,000       94,000
    Cash paid for income taxes .....    74,000            -
    Cash received for income taxes .     4,000            -





                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Introduction

The Company commenced operations in  1978 with the opening  of the first Taco  
Cabana restaurant in  San Antonio,  Texas.   As of  November 9,  1998, the  
Company had  103 Company-owned restaurants and 10  franchised restaurants 
including one  joint-venture owned.  The  Company's revenues  are derived  
primarily from  sales by  Company-owned restaurants, with franchise fees and 
royalty income currently contributing less  than 1% of total revenues.

During the thirty-nine weeks ended September  27, 1998, the Company opened 
seven and closed four Company-owned  restaurants and  a franchisee  of the 
Company closed  one restaurant.  Subsequent to September 27, 1998, the Company 
opened two restaurants.


The following table sets forth for the periods indicated the percentage  
relationship to total revenues, unless otherwise indicated,  of certain 
operating statement  data.  The table also sets forth certain restaurant data 
for the periods indicated.


                           13 Weeks Ended                 39 Weeks Ended    
                           --------------                 --------------
                       September 28, September 27,  September 28,September 27,
                          1997         1998             1997         1998   
                       ------------  ------------   ------------ ------------
Operating Statement Data:
REVENUES:
  Restaurant sales.......    99.8%         99.7%          99.7%        99.7%
  Franchise fees and 
  royalty income.........     0.2           0.3            0.3          0.3
                            -----         -----          -----        -----

  Total revenues.........   100.0%        100.0%         100.0%       100.0%
                            =====         =====          =====        =====

COSTS AND EXPENSES:
  Restaurant cost of 
  sales (1)..............    31.1%         30.7%          30.9%        30.3%
  Labor (1)..............    28.0          26.5           27.4         26.8
  Occupancy (1)..........     6.1           5.4            6.3          5.6
  Other restaurant operating 
  costs (1)..............    19.7          17.3           18.8         17.5
  General and administrative  4.3           5.3            5.1          5.5
  Depreciation, amortization and
    restaurant opening costs  7.7           5.5            7.8          5.6
                            -----         -----          -----        -----

INCOME FROM OPERATIONS...     3.3           9.5            4.0          9.0

INTEREST EXPENSE, net....    (0.7)         (1.5)          (0.8)        (1.3)
                            -----         -----          -----        -----

INCOME BEFORE
  INCOME TAXES...........     2.5           8.0             3.2         7.7

PROVISION FOR
  INCOME TAXES...........    (0.9)            -            (1.2)          -
                            -----         -----           -----        -----

NET INCOME...............     1.6%          8.0%            2.0%        7.7%
                            =====         =====           =====       =====



Restaurant Data:

Company-owned restaurants:
  Beginning of period....      107           101             104         98
  Opened.................        2             1               5          7
  Acquired...............        1             -               1          -
  Closed.................        -            (1)              -         (4)
                             -----         -----           -----       ----- 
  End of period..........      110           101             110         101

Franchised (2) and joint-venture
  owned restaurants:.....       11            10              11          10
                             -----         -----           -----       -----

Total restaurants:.......      121           111             121         111
                             =====         =====           =====       ===== 

   


(1)      Percentage is calculated based upon restaurant sales.
(2)      Excludes Two Pesos licensed restaurants.



The Thirteen Weeks Ended September 27, 1998 Compared to the Thirteen Weeks Ended
September 28, 1997

Restaurant Sales.   Restaurant sales  increased by $1.2  million, or  3.5%, to 
$36.2 million for the third  quarter of 1998 from  $35.0 million for  the third 
quarter  in 1997.  The increase was due primarily to an increase in sales at 
existing restaurants and sales from  restaurants opened  after September 28,  
1997, offset  by sales  from restaurants closed after September 28, 1997.  
Comparable store sales, defined as Taco Cabana restaurants that  have been 
open  18 months or  more at the  beginning of  the quarter, increased  2.8%.   
Management attributes  the  increase to  several  factors including a  more 
consistent  marketing program  featuring a  value meal  message,  a 
commitment to increased staffing levels at existing restaurants, the ongoing  
reimage program, a menu price increase of  approximately 2% which was 
implemented during  the first quarter of  1998 and the  closing of 
underperforming  restaurants.  Sales  from restaurants opened  after  
September 28,  1997  accounted  for an  increase  of  $4.4 million. This 
increase  was offset by  sales of $2.8  million from restaurants  which
were closed after September 28, 1997.

Restaurant Cost of Sales.   Restaurant cost of sales,  calculated as a 
percentage  of restaurant sales, decreased to 30.7% for the third quarter of 
1998 from 31.1% for the third quarter of 1997.  The decrease was due  
primarily to continued improvements  in the management  of  food costs 
through  utilizing increased  controls  and  improved purchasing programs,  
including  the  continued negotiation  of  favorable  commodity pricing.  
In addition, food costs as a percentage of restaurant sales were  favorably
impacted by a menu  price increase of approximately  2% which was implemented  
during the first quarter of 1998.  Restaurant cost of sales,  as a percentage of
restaurant sales, have increased  from 29.9%  in the  second quarter  of 1998  
primarily due  to recent commodity price increases.  Management expects this  
trend to continue  during the remainder of 1998.

Labor.  Labor  costs, calculated as  a percentage of  restaurant sales, 
decreased  to 26.5% during  the third  quarter of  1998 from  28.0% for  the 
same  period in  1997.  Adjusting for restaurants  closed after  September 28,  
1997, comparable  labor as a percentage of restaurant sales in the third 
quarter of 1997 was 25.7%.  The  increase in comparable labor costs  was due 
to an  increase in the  minimum wage in September 1997,  management's  
continued commitment to increased  staffing levels at the restaurant level in 
order to provide a consistent guest experience as well as  higher than normal 
labor costs at newer restaurants.  New restaurants generally have  higher
than normal labor costs for the first four  to six months of operations.   
Management expects the trend in comparable labor costs to continue during the 
remainder of 1998.

Occupancy.  Occupancy costs  decreased by $157,000 during  the third quarter of
1998 compared to the third quarter of 1997.  The decrease was primarily due to 
the closure of underperforming restaurants  during 1997.   As a percentage  
of restaurant  sales, occupancy costs decreased to 5.4% in  the third quarter of
1998 compared to 6.1% in the third quarter of 1997, due  primarily to increased 
restaurant average unit  sales volumes, which was in turn attributable to the 
closure of underperforming restaurants and the opening of new restaurants with 
higher sales volumes.

Other Restaurant Operating Costs.  Other restaurant operating costs decreased to
$6.3 million in the third quarter of 1998 compared to $6.9 million in the third 
quarter of 1997. As a percentage of restaurant sales, other restaurant operating
costs decreased to 17.3% for the  third quarter of 1998  compared to 19.7% for  
the third quarter  of 1997.  The  decrease was due  to decreased marketing  and 
promotional activities  and increased restaurant average  unit sales  volumes. 
Management  expects the  favorable comparisons as a percentage of sales to 
continue during 1998.

General and Administrative.   General and administrative  expenses increased to
$1.9 million for the third quarter of 1998 from  $1.5 million in the comparable
period  of 1997. As a percentage of sales, general and administrative expenses 
increased to 5.3% for the third  quarter of 1998  compared to 4.3%  in the same 
period of  1997.   The increase was primarily due to the reversal of bonus 
accruals during the third quarter of 1997. Management expects this amount to 
slightly decrease or remain constant, as a percentage of sales, throughout the 
remainder of 1998.


Depreciation, Amortization and Restaurant Opening Costs.  Depreciation,  
amortization and restaurant opening costs consisted of the following:

                                       Thirteen Weeks Ended
                                       --------------------
                                    September 28, September 27,
                                    ------------  ------------       
                                        1997         1998
                                    ------------  ------------
                                     (Unaudited)  (Unaudited)

    Depreciation of property and  
    equipment ...................    $2,214,000   $1,784,000  
    Amortization ofintangible  
    assets ......................       382,000      146,000
    Restaurant opening costs ....       102,000       65,000


Depreciation expense decreased by $430,000 for  the quarter ended September 27,
1998 compared to the quarter ended September 28, 1997.  The decrease was 
primarily due  to the closure  of restaurants  and the  writedown  of assets in
conjunction  with  the special charge recorded  in the  fourth quarter of  1997,
offset  by new  restaurants opened since  September  28, 1997,  as  well  as 
continued  capital  improvements  to existing restaurants.  Amortization  of 
intangible assets  decreased by $236,000  for the quarter ended  September 27,  
1998 compared to  the quarter  ended September  28, 1997.   The decrease  was 
primarily  due to  the writedown  of intangible  assets  in conjunction with  
the  special  charge  recorded  in  the  fourth  quarter  of  1997.  Restaurant 
opening  costs decreased  by  $37,000 during  the  third quarter  of  1998
compared to the  same period in  1997, primarily due  to the opening  of one  
Company owned restaurant during  the third  quarter of  1998.   See footnote  1 
to  Condensed Consolidated Financial  Statements  regarding  the treatment  of  
restaurant  opening costs.

Interest Expense, net.  Interest expense, net of interest capitalized on 
construction costs, increased to $543,000 in the third quarter of 1998 from 
$256,000 in the  third quarter of 1997, primarily as a  result of additional 
borrowings under the  Company's debt facilities. In addition, the Company 
capitalized $17,000 of interest related  to new restaurant construction in the 
most recent quarter compared to $43,000 during the third quarter of 1997.

Income Taxes.  Provision for income taxes decreased to zero for the third 
quarter of 1998 compared to $331,000, or 37%  of income before taxes,  for the 
third quarter  of 1997. The decrease in income taxes is  due to the recognition 
of previously  reserved deferred tax assets.

Net Income and  Earnings Per Share.   Net income  increased to $2.9  million for
the third quarter of 1998 from $562,000 for the same period in 1997.  Net income
was 8.0% of total revenues for the third quarter in 1998 compared to 1.6% in the
third quarter of 1997.  Diluted earnings per share was $0.20 for the third 
quarter of 1998 compared to $0.04 in the same period of 1997.  The  increase in 
earnings per share during  the third quarter of fiscal 1998 compared to the 
same quarter last year was due to higher sales at existing restaurants, the 
opening of new restaurants, continued strong  cost controls, the closing of 
underperforming restaurants, a reduction in depreciation and amortization 
expense, the lack of a provision for income taxes in the current quarter
and a reduction in the number of shares outstanding.

The Thirty-nine weeks  Ended September  27, 1998  Compared to  the Thirty-nine
weeks Ended September 28, 1997


Restaurant Sales.   Restaurant sales increased  by $5.5 million,  or 5.6%, to  
$104.7 million for the thirty-nine weeks ended September 27, 1998 from $99.2 
million for the comparable period in 1997.  The increase was due primarily to 
an increase in sales at existing restaurants  and sales  from restaurants  
opened after  September 28,  1997, offset by sales from restaurants closed after
September 28, 1997.  Comparable  store sales, defined as Taco Cabana restaurants
that have been open  18 months or more  at the beginning of the quarter, 
increased 4.5%.  Management attributes the increase  to several factors 
including a more consistent marketing program featuring a value  meal message, a
commitment to  increased staffing  levels  at existing  restaurants,  the
ongoing reimage program, favorable weather during the first quarter of 1998  
compared to 1997, a menu price increase of  approximately 2% which was 
implemented during the first quarter of  1998 and the  closing of 
underperforming  restaurants.  Sales  from restaurants opened  after 
September  28,  1997 accounted  for  an increase  of  $11.0 million. This 
increase was offset by  sales from restaurants which were closed  after
September 28, 1997 of $8.0 million.

Restaurant Cost of Sales.   Restaurant cost of sales,  calculated as a 
percentage of restaurant sales, decreased to  30.3% for the thirty-nine  weeks 
ended September  27, 1998 from  30.9% for  the same  period in  1997. The  
decrease was  due primarily to continued improvements in the  management of food
costs through utilizing  increased controls and improved  purchasing programs,  
including the  continued negotiation  of favorable commodity pricing.  In 
addition,  food costs as a percentage of  restaurant sales were favorably 
impacted by a menu price increase of approximately 2% which  was implemented 
during the first quarter  of 1998.  Management  expects cost of sales  to
increase slightly, as a percentage of sales, during the remainder of the year 
due to recent increases in commodity prices.

Labor.  Labor  costs, calculated as  a percentage of  restaurant sales, 
decreased to 26.8% for the  thirty-nine weeks ended  September 27, 1998  from 
27.4%  for the  same period in  1997.    Adjusting  for  restaurants  closed  
after  September  28,  1997, comparable labor as  a percentage of  restaurant 
sales during  the thirty-nine  weeks ended September 27, 1998 was 26.1%.  The  
increase in comparable labor costs was  due to an  increase  in  the  minimum 
wage  in  September  1997,  management's  continued commitment to increased 
staffing levels at the restaurant level in order to provide a consistent guest  
experience as  well as  higher  than normal  labor costs  at  newer restaurants.
New restaurants generally have  higher than normal labor costs for  the
first four to six  months of operations. Management  expects the trend in  
comparable labor costs to continue during the remainder of 1998.

Occupancy.  Occupancy costs decreased by $392,000 during the thirty-nine weeks  
ended September 27, 1998 compared to the same period  in 1997.  The decrease was
primarily due to the  closure of underperforming  restaurants during 1997.  As a
percentage  of restaurant sales, occupancy costs  decreased to 5.6% in  the 
thirty-nine weeks  ended September 27, 1998 compared to 6.3% in the same period 
of 1997. The decrease was due to an increase in restaurant average unit sales 
volumes during 1998.

Other Restaurant  Operating Costs.   Other restaurant operating costs decreased 
to $18.4 million in  the thirty-nine weeks  ended September 27, 1998 compared to
$18.7 million in  the same  period of  1997. As  a percentage  of restaurant  
sales, other restaurant operating  costs  decreased  to 17.5%  for  the  thirty-
nine  weeks  ended September 27, 1998 compared to 18.8% for the same  period of 
1997.  The decrease  was due to decreased marketing and promotional  activities 
and an increase in  restaurant average unit  sales  volumes.  Management expects
the  favorable  comparisons  as  a percentage of sales to continue during 1998.

General and Administrative.   General and administrative  expenses increased to 
$5.8 million for the thirty-nine weeks ended September  27, 1998 from $5.1 
million in  the comparable period of 1997. The  increase was primarily due to an
increased level of expenditures to support the Company's operations and an 
increase in the bonus accrual during the thirty nine weeks ended September 27, 
1998 compared to the same period in 1997. As a percentage of sales, general and 
administrative expenses increased to 5.5% for the thirty-nine  weeks ended 
September  27, 1998 compared  to 5.1%  for the  same period of  1997.  
Management expects  this  amount  to slightly  decrease  or  remain
constant, as a percentage of sales, throughout the remainder of 1998.

Depreciation, Amortization and Restaurant Opening Costs.  Depreciation,  
amortization and restaurant opening costs consisted of the following:

                                     Thirty-nine weeks Ended
                                     -----------------------
                                    September 28, September 27,
                                    ------------  ------------
                                        1997          1998
                                    ------------  ------------
                                     (Unaudited)  (Unaudited)

    Depreciation of property and     
    equipment ...................    $6,351,000   $4,946,000 
    Amortization of intangible  
    assets ......................     1,194,000      429,000
    Restaurant opening costs ....       213,000      462,000


Depreciation expense  decreased  by $1.4  million  for the  thirty-nine  weeks  
ended September 27, 1998 compared to the same period  in 1997.  The decrease was
primarily due the closure of restaurants  and the writedown of  assets in 
conjunction with  the special charge recorded  in the  fourth quarter of  1997, 
offset  by new  restaurants opened since  September  28, 1997,  as  well  as 
continued  capital  improvements  to existing restaurants.  Amortization  of 
intangible assets  decreased by $765,000  for the thirty-nine weeks ended 
September 27, 1998  compared to the same period in  1997.  The decrease was 
primarily due to  the writedown of intangible assets in  conjunction with the 
special charge recorded in the  fourth quarter of 1997.  Restaurant  opening
costs increased by $249,000  during the thirty-nine weeks  ended September 27,  
1998, compared to the same period in 1997. The increase was primarily due to the
opening of seven restaurants during the thirty-nine weeks ended September 27,  
1998.    See footnote 1 to Condensed Consolidated Financial Statements regarding
the treatment  of restaurant opening costs.

Interest Expense, net.  Interest expense, net of interest capitalized on 
construction costs, increased to $1.4  million in the thirty-nine  weeks ended 
September 27, 1998 from $772,000  in the  same period  of  1997, primarily  as  
a result  of  additional borrowings under the Company's debt facilities. In 
addition, the Company capitalized $94,000 of interest related to new  restaurant
construction  during the  thirty-nine weeks ended September 27, 1998 compared to
$88,000 during the same period in 1997.

Income Taxes.  Provision for income taxes decreased to zero for the thirty-nine 
weeks ended September 27, 1998 compared to $1.2 million, or 37% of income before
taxes, for the same period in 1997. The decrease in income  taxes was due to the
recognition  of previously reserved deferred tax assets.

Net Income and  Earnings Per Share.   Net income  increased to $8.0  million for
the thirty-nine weeks ended September 27, 1998 from $2.0 million for the same 
period in 1997.   Net  income was  7.7%  of total  revenues for the thirty-nine 
weeks ended September 27, 1998 compared to 2.0% in the same period of 1997.  
Diluted earnings per share was $0.55 for the thirty-nine weeks ended 
September 27, 1998 compared to $0.13 in the same period of 1997.   The increase 
in earnings  per share during the thirty-nine weeks ended September 27, 1998 
compared to the same period last year was due to higher sales  at existing  
restaurants, the  opening  of new  restaurants,  continued strong cost controls,
the closing of  underperforming restaurants,  a reduction in depreciation and 
amortization expense, the lack of a provision for income taxes and a reduction 
in the number of shares outstanding.

Liquidity and Capital Resources

Historically, the Company  has financed business  and expansion  activities by  
using funds generated from  operating activities, build-to-suit  leases, equity 
financing, short and long-term debt and capital leases. The Company maintains 
credit  facilities totaling $30.0 million, including a $5.0 million unsecured 
revolving line of  credit. As of October 30, 1998, $24.8 million was outstanding
under these commitments.

Net cash provided by operating activities was $10.8 million for the thirty-nine 
weeks ended September 27, 1998, and $9.7 million for the thirty-nine weeks ended
September 28, 1997.

Net cash used  in investing activities  was $13.8 million  for the thirty-nine  
weeks ended September 27, 1998 representing primarily capital expenditures of 
$17.0 million for the construction  of new restaurants  and improvements  to 
existing  restaurants. This was offset  by the sale  of assets generating  
$3.2 million in  proceeds.   This compares to $11.5 million in  net cash used 
in investing activities for the  thirty-nine weeks ended September 28, 1997, 
representing primarily capital expenditures for the construction of new 
restaurants and improvements to existing restaurants, offset by the sale of 
assets generating $1.4 million in proceeds.

Net cash provided by financing activities was $3.5 million for the thirty-nine  
weeks ended September 27,  1998 representing primarily  net draws from  the 
Company's debt facilities of $9.2 million, offset by the purchase of $5.7 
million in treasury stock. This compares to net  cash provided by  financing 
activities of  $1.3 million in the same period of 1997, representing net draws 
on the Company's debt facilities of  $5.0 million, offset by the purchase of 
$3.6 million in treasury stock.


The Company's  Board of  Directors previously  approved a plan to  repurchase up
to 2,500,000 shares of the Company's Common Stock.  As of October 30, 1998, 
the Company had repurchased 2,149,700 shares at an average cost of $5.11 per 
share.  The  Company has funded the repurchases through available  bank credit 
facilities, as well as the liquidation of the  Company's short term  investment 
portfolio.   The timing, price, quantity and manner of future purchases will be 
made at the discretion of  management and will depend upon market conditions.   
The Company intends to fund the  repurchase program through available credit  
under its bank credit  facilities and current  cash flows from operations.

The special charges  recorded in  1997 and  1995 included  accruals of  
approximately $10.2 million  to  record the  estimated  monthly  lease payments,
net  of  expected sublease receipts, associated with certain restaurants which 
have been closed.   Cash requirements for this accrual were approximately $1.5 
million during the  thirty-nine weeks ended September  27, 1998.   During the 
thirty-nine weeks ended September 27, 1998, the Company sold properties relating
to the special charges which resulted in proceeds of $3.2 million, which 
approximated  the carrying value of the assets  sold.  The Company currently has
three closed restaurant properties for sale which were covered by the special 
charges.  Although there can be no assurance of the particular price at which 
such  properties will be  sold, the Company  expects to receive  funds equal to 
or in excess of  the carrying value  upon the actual  disposition of  these
properties.  In addition, certain acquisition and accrued liabilities related to
the Two Pesos acquisition were reduced by  payments of approximately $193,000 
during the thirty-nine weeks ended September 27, 1998.

The Company believes that  existing cash balances,  funds generated from  
operations, its ability to borrow, and the possible use of lease financing will 
be sufficient to meet the Company's capital requirements through 1999, including
the planned opening of ten to fifteen restaurants in 1999, and the reimaging of 
30 restaurants during the 1999 fiscal  year.    Total  capital expenditures  
related to new restaurants are estimated to be $12.0 to  $17.0 million.  The 
total for other capital  expenditures, including the cost of the reimagings, is 
estimated to be $6.0 to $8.0 million.  Total capital expenditures for 1999 are 
expected to approximate $18.0 to $25.0 million.



Impact of Inflation
                                       
Although increases in labor, food or other operating costs could adversely 
affect the Company's operations, management does not believe  that inflation has
had a  material adverse effect on the Company's operations to date.

Seasonality and Quarterly Results

The Company's sales fluctuate seasonally.  Historically, the Company's highest  
sales and earnings occur in the second and third quarters. In addition, 
quarterly  results are affected by the timing of the opening and closing of 
stores. Therefore, quarterly results cannot be used to indicate results for the 
entire year.

Forward-Looking Statements

Statements in this quarterly report concerning Taco Cabana which are (a)  
projections of revenues, costs,  including trends in  cost of sales,  operating 
costs, labor  and general and administrative costs  or other financial items,  
(b) statements of  plans and objectives  for  future  operations, specifically  
statements  regarding  planned restaurant openings and  reimages as  well as 
share  repurchases and  cash flows  (c) statements of  future  economic 
performance,  or  (d) statements  of  assumptions  or estimates underlying  or  
supporting the foregoing are forward-looking  statements within the meaning of 
Section 27A  of the Securities Act of  1933 and Section 21E of the Securities  
Exchange Act  of  1934.   The  ultimate accuracy  of  forward-looking statements
is subject to a wide range of risks, uncertainties and other factors which may 
cause actual results and outcomes to differ, often materially, from 
expectations. Any number of important factors could cause actual results to 
differ materially from those in the forward-looking statements herein, including
the following:  the  timing and extent  of  changes  in prices  of  commodities 
and supplies  that  the  Company utilizes; cost and availability of labor;  
actions of our customers and  competitors; changes in state and federal 
environmental, economic, safety and other policies and regulations 
and any legal or regulatory  delays or other factors  beyond the Company's  
control; execution  of planned  capital projects;  weather  conditions affecting
the  Company's  operations;  natural disasters  affecting  operations;  and
adverse rulings, judgments, or settlements in litigation or other legal matters.
The Company disclaims any intention or obligation  to update or revise any such 
forward-looking statements,  whether  as  a  result of  new  information, future
events or otherwise.





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

At the  annual  meeting  of stockholders  held  on  August 18,  1998,  the  
Company's stockholders elected six directors.  There  were no broker non-votes. 
The votes were as follows:

                         For            Withheld
     Stephen V. Clark  14,298,217        96,397
     William J. Nimmo  14,296,637        97,977
     Richard Sherman   14,297,457        97,157
     Cecil Schenker    14,296,057        98,557
     Lionel Sosa       14,296,132        98,482
     Rod Sands         14,298,357        96,257

Item 6. Exhibits and Reports on Form 8-K

Exhibit 27 Financial Data Schedule.  Filed with EDGAR version.

No reports on Form 8-K were filed during the period covered by this report.

Signature

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 11, 1998      Taco Cabana, Inc.





                         /s/David G. Lloyd                  
                         ----------------------------------------------
                         David G. Lloyd
                         Senior Vice President, Chief Financial Officer,
                         Secretary and Treasurer



                         Signing on behalf of the registrant and as the
                         principal financial and accounting officer