The season ran from 1 July 2006 to 30 June 2007; Benfica competed domestically in the Primeira Liga and the Taça de Portugal.

The club also participated in the UEFA Champions League as a result of finishing third in the Primeira Liga in the previous season.

In the transfer market, Benfica brought back Rui Costa and recruited other notable players including Katsouranis and David Luiz.

Fabrizio Miccoli had his loan renewed for a second year, while Geovanni, Manuel Fernandes and Ricardo Rocha left the club during the season.

In Europe, the situation was similar; Benfica never recovered a five-point deficit to Celtic by day three, ending with seven points and demotion to the UEFA Cup.

From December until April, Benfica regained lost ground in the Primeira Liga, climbing to second place—a point away from Porto, which was also advancing until the quarter-finals of UEFA Cup In April, Benfica had the opportunity to reach the league's top place if they won the Clássico with Porto; however, they only managed a 1–1 draw.

Despite an improvement in form, Benfica wasted a chance to retake second place after another home draw against arch-rival club Sporting.

[3] They initially focused on Sven-Göran Eriksson, who had previously managed the club[4] and was in Algarve preparing for the World Cup with England's national squad.

[10] Santos had last managed in Portugal in 2003–04, when he led Sporting to a third-place finish,[11] and previously spent three years at Porto, winning five major titles.

[13] Benfica's first signing of the season was Rui Costa[14] nicknamed "The Maestro", who arrived for free and was well received by 3,000 supporters.

[19] In the offence, Fabrizio Miccoli had his loan deal renewed for a further season,[20] and Benfica signed another option, Mexican striker, Francisco Fonseca.

[21] The biggest losses for Santos were the release of Geovanni—a regular starter for three-and-a-half seasons—[22] and Manuel Fernandes, who joined Portsmouth on a loan deal.

[30] They then competed in the 2006 Guadiana Trophy alongside their arch-rivals Sporting CP and Deportivo La Coruña, losing both matches.

[31][32] On 28 July, Benfica took part in the draw for the third qualifying round of the UEFA Champions League; they were paired with Austria Wien.

[38] Benfica had joined their rivals Porto and Sporting in the 2006–07 Champions League, marking the first time three Portuguese teams were present in the group stage.

[43] However, because of the "Mateus Affair," the game was uncertain to occur; Santos expressed hopes for the quick resolution of the case, adding that it was bad for Portuguese football and that the uncertainty caused his players to lose focus.

[49] Santos said the defeat was "heavy and out of context" and blamed the ejection of Nuno Gomes for emotionally destabilizing the team.

[55] In Santos' analysis, Benfica controlled the match, but after "an inexplicable ejection from Léo, the home team got back into the game.

[59] Santos said Benfica played "60 minutes of great quality," but was disappointed with loss and expressed a desire to improve the situation.

[57] Benfica had the upper hand in the first half, but Celtic scored two second-half goals in a ten-minute window and finished the game with a third.

[57] They surprised United with an opening goal from Nélson near the half-hour, but conceded an equalizer from Nemanja Vidić just before half time.

[91] In January, the Taça de Portugal started for Benfica;[38] they entered in the fourth round and played with Oliveira do Bairro from the third tier.

[96] As the month progressed, Benfica made some squad adjustments, selling Francisco Fonseca back to Mexico[97] and replacing him with Derlei on a loan from Dynamo Moscow.

[98] They then sold Ricardo Rocha to Tottenham Hotspur,[99] and signed David Luiz, also on a loan deal, as his replacement.

[106] Benfica's elimination at the hands of Varzim was the third time in Santos' career he was knocked-out of the Portuguese Cup by a team from lower divisions, the other clubs being Porto and Sporting.

[111] The home team had an opportunity to lead with a penalty kick in the 36th minute, but Quim stopped Hernâni Borges's shot.

Throughout the second half, Benfica threatened Mickaël Landreau's goalposts, finally scoring near the 90th minute when Simão converted a penalty resulting from a foul on Léo.

The Clássico was the next match;[123] Santos lowered fans' expectations by saying the league race was open for all of the Big Three and that there were still eight match-days to go before the season's end.

[127] The Spaniards pushed hard from early on and scored first through Raúl Tamudo in the 15th minute; shortly after the half-hour mark, Albert Riera made it 2–0 and in the second half, Walter Pandiani added a third goal.

[145] Because both rivals had won, Benfica finished in third place with 67 points, two behind winners Porto and one behind Sporting,[127] missing out on direct entry to the 2007–08 UEFA Champions League.