Mail Stop 4561

      February 6, 2006

Robert W. Hagger
President, Chief Executive Officer and
Director
Datawatch Corporation
175 Cabot Street, Suite 503
Lowell, MA  01854

	Re:	Datawatch Corporation
   Form 10-K for the Fiscal Year Ended
   September 30, 2005
		Filed December 12, 2005
		File No. 000-19960

Dear Mr. Hagger:

	We have reviewed the above referenced filings and have the
following comments.  We may ask you to provide us with
supplemental
information so we may better understand your disclosure.  Please
be
as detailed as necessary in your explanation.  After reviewing
this
information, we may raise additional comments.

      Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects.  We welcome
any questions you may have about our comments or any other aspect
of
our review.   Feel free to call us at the telephone numbers listed
at
the end of this letter.

Note 1. Nature of Business and Summary of Significant Accounting
Policies

Revenue Recognition, page 32

1. We note your schedule on page 33 that presents the changes to
and
ending balances of the allowance for doubtful accounts for each of
the three years ended September 30, 2005.  Tell us how you
considered
including a similar schedule that includes your reserves for
product
returns and provide a copy of your valuation analysis for each of
the
periods for which a statement of operations is presented.  Also,
tell
us how you considered presenting the activity for both of these
accounts in Schedule II as noted in Rule 5-04 of Regulation S-X.

2. We note on page 3 that during 2004, you introduced a
subscription
sales model related to your enterprise products and that such
subscription terms run 90 days to 24 months and automatically
renew
unless terminated within 90 days notice.  We also note that you
recognize revenue ratably over the period the service is provided.
Tell us in detail what elements/services are included in your
subscription arrangements (e.g. software, installation,
maintenance,
unspecified future upgrades, etc.) and why you believe
subscription
accounting is appropriate including the accounting literature you
are
relying on.

3. Your disclosures on page 4 make reference to "typical
configurations" sold with the Company`s enterprise report
management
and business service center products.  Explain what you mean by
the
term "typical configurations" and tell us how you account for
these
services.  Are these configurations essential to the functionality
of
the software?  Tell us how you considered paragraph 13 of SOP 97-2
in
accounting for the software and configurations.

Note 2. Acquisitions, page 39

4. We note your reference to an independent valuation firm in your
disclosures related to your acquisitions of Mergence Technologies
Corporation and Auxilor, Inc.  If you choose to refer to an
independent appraisal firm, you must identify the independent
appraisal firm and include the expert`s consent when the reference
is
included in a filing in the 1933 Act environment.  We believe
reference to such expert in a registration statement requires a
consent following Rule 436(b) of Regulation C.  Please note for
future reference.

Item 9A. Controls and Procedures, page 49

5. We note in your controls and procedures section that you have
evaluated the disclosure controls and procedures as of an
unspecified
date that is within 90 days before the filing date of this annual
report.  Tell us what consideration you have given to SEC Release
No.
33-8238 which requires that the evaluation be done as of the end
of
the period covered by the annual report.

      * * * * *

      As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response.  Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T.  You
may wish to provide us with marked copies of any amendment to
expedite our review.  Please furnish a cover letter with any
amendment that keys your responses to our comments and provides
any
requested information.  Detailed cover letters greatly facilitate
our
review.  Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.

	 We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision.  Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.

	In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:

* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;

* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and

* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.

	In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.

      You may contact Patrick Gilmore at (202) 551-3406 or me at
(202) 551-3499 if you have questions regarding comments on the
financial statements and related matters.

							Sincerely,


							Kathleen Collins
							Accounting Branch Chief

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Robert W. Hagger
Datawatch Corporation
February 6, 2006
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