Wrong, says Mike Allen at Popular Mechanics. In fact, coasting in neutral can burn more gas than simply coasting in gear.

According to Allen, when the engine coasts in neutral, it idles the same as when it's idling at a stoplight -- and burning roughly 1 gallon of fuel per hour. Now here's where it becomes somewhat technical, so I'll turn it over to Allen:

"I've replicated these conditions with instrumented cars, both with scan tools and with an oscilloscope, measuring the leads leading into the fuel injectors. The signal controlling the injector is a 12-volt square wave. It's pulse-width-modulated, varying from 5 percent or so at idle to around 80 percent or so at full throttle. The higher the percentage of on time to off time, the more fuel. There's one on pulse for every cylinder firing, so the consumption also varies with engine speed (rpm). All vehicles show a short pulse width at idle, regardless of whether they're sitting in traffic at a red light or coasting downhill — at idle — in neutral. (Actually, they use a fraction more fuel sitting in drive at a traffic light, because of the drag in the torque converter, but I digress.)"

While coasting in gear, though, almost all vehicles show a pulse width of zero -- which means the vehicle is consuming no fuel, whether you're talking about manuals or automatics -- even as the engine turns over, the pistons go through their motions, and the water pump, alternator, etc., are all running. The engine does eventually slow to idle rpm, as you coast up to a stop at a traffic light, at which point the fuel injection kicks in to stop the engine from stalling. Allen says this "usually starts at around 1000 rpm, and if you pay attention, you can sense when it's happening as the engine will rev up slightly. And that's when the scan tool or oscilloscope will show injector dwell rise from zero to 5 to 10 percent. So you're actually wasting gas by putting your car into neutral."

And it's dangerous, to boot.