It goes beyond the full quote --- the whole paper is great, showing Knuth's stature as both a thinker and a writer. If you've ever quoted the "premature optimization" line to someone, or nodded when hearing it, you'd do yourself justice by understanding the context of the quote.

http://cs.sjsu.edu/~mak/CS185C/KnuthStructuredProgrammingGoT...

Here's some more from it to entice you:

  My own programming style has of course changed during the 
  last decade, according to the trends of the times (e.g., 
  I'm not quite so tricky anymore, and I use fewer go to's), 
  but the major change in my style has been due to this inner 
  loop phenomenon. I now look with an extremely jaundiced eye 
  at every operation in a critical inner loop, seeking to 
  modify my program and data structure (as in the change from 
  Example 1 to Example 2) so that some of the operations can 
  be eliminated. The reasons for this approach are that: a) 
  it doesn't take long, since the inner loop is short; b) the 
  payoff is real; and c) I can then afford to be less 
  efficient in the other parts of my programs, which 
  therefore are more readable and more easily written and 
  debugged.