  Using 9.0/fb of integrated luminosity in e+e- collisions near Upsilon(4S)
mass collected with the CLEO II.V detector we report the first observation of
the decay D0 -> K0S ETA PI0 We measure the ratio of branching fractions, BR(D0
-> K0S ETA PI0) / BR(D0 -> K0S PI0) = 0.46 +- 0.07 +- 0.06. We perform a Dalitz
analysis of 155 selected D0 -> K0S ETA PI0 candidates and find leading
contributions from a_0(980) K0S and K*(892) ETA intermediate states.
