8-K

                   SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C.  20549


                      _____________________________


                               FORM 8-K

                             CURRENT REPORT
                      PURSUANT TO SECTION 13 OF THE
                     SECURITIES EXCHANGE ACT OF 1934

     DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) September 9, 1996





                               DIXIE YARNS, INC.          
            (Exact Name of Registrant as specified in its Charter)





      Tennessee                        0-2585               62-0183370
(State or other jurisdiction      (Commission File       (I.R.S. Employer
  of incorporation)                    Number)          Identification No.)





            1100 SOUTH WATKINS STREET, CHATTANOOGA, TN  37404
        (Address of principal executive offices)       (ZIP Code)




    Registrant's telephone number, including area code (423) 698-2501




Item 5.  Other Events

On August 22, 1996, the Company's Board of Directors adopted a Stock 
Ownership Plan (the "Plan") applicable to the Chief Executive Officer, 
President, Chief Financial Officer, and all corporate Vice Presidents and 
Executive Vice Presidents of the Company.  The purpose of the Plan is to 
encourage each participant to make a significant investment in the 
Company's Common Stock.  In order to facilitate the acquisition of such 
stock by participants, the Plan provides that each corporate officer 
eligible to participate in the Plan will be allowed to subscribe for the 
purchase, directly from the Company, of a number of shares of Common Stock 
up to, but not exceeding, that number of shares having a fair market value 
equal to two times such officer's base salary.  For this purpose, the fair 
market value of the Common Stock is deemed to be the closing price of such 
stock as reported by NASDAQ on either (i) the date of adoption of the Plan 
or (ii) the first anniversary of the date of the adoption of the Plan which 
occurs after a new participant is selected to participate in the plan 
(defined in the Plan as the "NASD Price").

The NASD Price is also intended to be used as the initial subscription 
price for any participants who elect to purchase shares under the Plan, 
although the Company retains the right to adjust the subscription price and 
other terms on which participants will be allowed to subscribe for shares 
at any time prior to the actual execution of a subscription agreement with 
any participant.  In addition to the initial opportunity of the designated 
officers to enter into subscription agreements under the Plan, each such 
officer will have the opportunity, on the two successive Anniversary Dates 
following his Initial Subscription Offering Date (each as defined in the 
Plan) to subscribe for additional shares of Common Stock having a fair 
market value equal to two times his base salary, less the amount of his 
previous subscriptions.  The full subscription price for all shares 
purchased by a participant under the Plan will be due and payable on the 
third Anniversary Date following his Initial Subscription Date under the 
Plan.  Any termination of a participant's employment with the Company due 
to death or disability will cause the subscription price for that 
participant's purchases to become due and payable (if not earlier pursuant 
to the terms described above) six months from the date of such event; any 
other termination of a participant's employment (for any reason) will cause 
the participant's full subscription price to be due and payable ten days 
from the participant's termination date.

As of September 9, 1996, seven of the Company's senior executive officers 
(the President and Chief Executive Officer; the Executive Vice President 
and Chief Operating Officer for Candlewick, Carriage and Bretlin; the 
Executive Vice President and President of Masland Carpets, Inc.; the 
Executive Vice President and President and Chief Operating Officer of the 
Textile and Apparel Group; the Vice President and President of Candlewick 
Yarns Group; the Vice President and President of Carriage Industries, Inc.; 
and the Vice President, Human Resources) have subscribed for an aggregate 
of 449,300 shares of the Company's Common Stock at a purchase price of 
$4.875 per share pursuant to the initial subscription agreements entered 
into under the Plan.






Administration of the Plan is delegated to the Compensation Committee of 
the Company's the Board of Directors, and the Company may select additional 
senior officers to participate in the Plan on an annual basis.  Initially, 
the shares for which participants subscribe under the Plan will be 
restricted stock subject to all applicable resale restrictions under 
Federal and state securities laws.  The Company intends to file a 
registration statement on Form S-8 with the Securities and Exchange 
Commission to permit the unrestricted public resale of shares acquired by 
participants in the Plan.





Item 7.  Financial Statements and Exhibits

      (c)  Exhibits

           (1)  Exhibits Incorporated by Reference:

                None.

           (2)  Exhibits Filed with this Report:

                (10)  Dixie Yarns, Inc. Stock Ownership Plan for senior
                      executive officers, approved by the Board of
                      Directors August 22, 1996, together with Form
                      of Stock Subscription Agreement under the Plan.






                               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.




                                    DIXIE YARNS, INC.
                                 _________________________

                                    (Registrant)






                                 By:/s/D. EUGENE LASATER
                                    ______________________

                                       D. Eugene Lasater
                                       Controller



                                 Date:  September 17, 1996
                                      ____________________






                               DIXIE YARNS, INC.
                          CURRENT REPORT ON FORM 8-K
                                 EXHIBIT INDEX


Exhibit No.         Description

(10)                Dixie Yarns, Inc. Stock Ownership Plan for senior
                    executive officers, approved by the Board of
                    Directors August 22, 1996, together with Form
                    of Stock Subscription Agreement under the Plan.

EX-10

                                 EXHIBIT 10



                             DIXIE YARNS, INC.

                           STOCK OWNERSHIP PLAN

PURPOSE:  The Board of Directors believes that it is desirable and in the 
best interest of the Company to encourage ownership of Common Stock of the 
Company by the principal officers of the Company.  It is believed that a 
substantial investment in the Company by such officers will encourage and 
enhance their incentive to manage the Company for the long term benefit of 
its shareholders.  Accordingly, the Board of Directors adopts this Plan in 
order to carryout such goals.


GOAL:  Every participant is encouraged to own that number of shares of 
Common Stock of the Company that represents in fair market value two (2) 
times such participant's base salary   commencing on the first business day 
three (3) years following (a) the date of adoption of this Plan, or (b) the 
first anniversary date of the adoption of this Plan occurring after a new 
participant is selected to participate in the Plan, whichever is 
applicable.  For the purpose of such determination, fair market value shall 
be determined by the closing price of the Company's Common Stock as 
reported by NASD on the date of such determination, or if the Common Stock 
is not traded on such day, then the earliest day prior thereto when such 
stock trades (the "NASD Price".)

PARTICIPANTS:  This Plan shall apply to the Chief Executive Officer, 
President, Chief Financial Officer, and all Corporate vice-presidents, and, 
such other persons as may be identified periodically from time to time 
hereafter by the Compensation Committee.

PURCHASE FROM COMPANY:  In order to facilitate the acquisition of Common 
Stock of the Company, the Company will on the date of adoption of the Plan 
by the Board of Directors, or as soon thereafter as may be practical, or on 
the next anniversary date of the adoption of the Plan (an "Anniversary 
Date") that occurs following the selection of a new corporate officer 
eligible to participate in the Plan (the "Initial Subscription Offering 
Date") allow each participant to subscribe for shares of Common Stock up to 
but not to exceed that number of shares having a fair market value based 
upon the NASD Price on the Initial Subscription Offering Date equal to two 
(2) times the participant's base salary.

Thereafter on the two (2) successive Anniversary Dates following the 
Initial Subscription Offering Date, a participant shall be allowed to 
subscribe for the purchase of additional shares of Common Stock having a 
fair market value equal to two (2) times the participant's base salary on 
such Anniversary Date less the dollar amount of any previous subscriptions. 
The purchase price of such shares shall be the NASD Price of the Common 
Stock on the applicable Anniversary Date of the offering.

Each subscription shall be automatically called for payment on the third 
Anniversary Date following the Initial Subscription Offering Date with 
respect to the participant.

DEATH OR DISABILITY:  In the event of the death of a participant or the 
disability of a participant such that the participant shall no longer 
continue to be employed by the Company, all subscriptions outstanding shall 
become due and payable, if not earlier pursuant to their terms, six (6) 
months from the date of such participant's death or disability, as 
applicable.

TERMINATION OF EMPLOYMENT:  In the event of the termination of employment 
of a participant for any reason other than death or disability, whether for 
or without cause, voluntary or involuntary, all subscriptions outstanding 
shall become due and payable, if not earlier pursuant to their terms, ten 
(10) days from the participant's termination date.

ACQUISTION:  In the event that the Company is acquired by another person, 
corporation or legal entity, whether by merger, consolidation, sale of 
assets, tender offer or other means, the Company shall have the right to 
immediately call all outstanding subscriptions for payment, at its sole 
option.

RESTRICTED STOCK:  All shares of Common Stock purchased by a participant 
from the Company shall be restricted stock and shall be subject to the 
resale restrictions imposed by all applicable federal and state securities 
laws.

RULE 16B-3 REQUIREMENTS:  The Board of Directors reserves the right to 
modify the Plan retroactively and/or submit the Plan to the Company's 
shareholders for approval should it determine that it is desirable to do so 
in order to meet the requirements of Rule 16b-3 of the Securities Exchange 
Act of 1934.

AUTHORITY TO MODIFY THE PLAN:  The Company reserves the right to modify or 
terminate the Plan at all times, provided that the Company will not change 
the number of shares of Common Stock or the maturity date of any 
subscription agreement outstanding without such participant's consent.

COMPENSATION COMMITTEE AUTHORITY:  The Board of Directors grants to the 
Compensation Committee the authority to administer the Plan and to make any 
changes in the Plan necessary or desirable in order to carry out the 
purposes of the Plan.  Furthermore, the Compensation Committee shall have 
exclusive authority to interpret the Plan provisions and to waive or modify 
any requirement of the Plan or any terms of a subscription agreement issued 
to a participant in the Plan.



                    FORM OF STOCK SUBSCRIPTION AGREEMENT

                              DIXIE YARNS, INC.


The undersigned participant in the Stock Ownership Plan (the "Plan") 
adopted by the Board of Directors of Dixie Yarns, Inc. ("Dixie") on
August 22, 1996, hereby subscribes for ________ shares of Common Stock
of Dixie, par value of $3 per share, at a price of $4.875 per share (the 
"Shares"), a total purchase price of $__________ (the "Purchase Price").

The undersigned participant in the Plan hereby agrees that the Purchase 
Price for the Shares shall be due and payable on August 21, 1999, if not 
sooner in accordance with the Plan.  The undersigned hereby acknowledges 
receipt of a copy of the Plan and confirms that the undersigned has read 
the Plan.  

This subscription is subject to the terms and conditions of the Plan, 
including specifically the provisions of the Plan that provide for 
automatic call for payment of the Purchase Price and the optional call
for payment of the Purchase Price before August 21, 1999.

All shares of Common Stock issued pursuant to this subscription may be 
restricted shares and subject to limitations and conditions of sale, 
including the holding of such shares for a minimum period of time.

Executed this ____ day of __________, 199__.


_____________________                           _____________________

     Participant                                       Witness

This subscription is accepted by Dixie Yarns, Inc. pursuant to the
terms of the Stock Ownership Plan adopted by the Board of Directors
on August 22, 1996.

Dixie Yarns, Inc.

By: _____________________

    Chairman and CEO