A newly developed three-dimensional electrostatic fluid model solving continuity and current closure equations aims to study phenomena that generate ionospheric turbulence. The model is spatially discretized using a pseudo-spectral method with full Fourier basis functions and evolved in time using a four-stage, fourth-order Runge Kutta method. The 3D numerical model is used here to investigate the behavior and evolution of ionospheric plasma clouds. This problem has historically been used to study the processes governing the evolution of the irregularities in the F region of the ionosphere. It has been shown that these artificial clouds can become unstable and structure rapidly (i.e., cascade to smaller scales transverse to the ambient magnetic field). The primary mechanism which causes this structuring of ionospheric clouds is the E×B, or the gradient drift instability (GDI). The persistence and scale sizes of the resulting structures cannot be fully explained by a two-dimensional model. Therefore, we suggest here that the inclusion of three-dimensional effects is key to a successful interpretation of mid-latitude irregularities, as well as a prerequisite for a credible simulation of these processes. We investigate the results of 2D and 3D nonlinear simulations of the GDI and secondary Kelvin–Helmholtz instability (KHI) in plasma clouds for three different regimes: highly collisional (≈200 km), collisional (≈300 km), and inertial (≈450 km). The inclusion of inertial effects permits the growth of the secondary KHI. For the three different regimes, the overall evolution of structuring of plasma cloud occurs on longer timescales in 3D simulations. The inclusion of three-dimensional effects, in particular, the ambipolar potential in the current closure equation, introduces an azimuthal “twist“ about the axis of the cloud (i.e., the magnetic field B). This azimuthal “twist” is observed in the purely collisional regime, and it causes the perturbations to have a non-flute-like character (k‖≠0). However, for the 3D inertial simulations, the cloud rapidly diffuses to a state in which the sheared azimuthal flow is substantially reduced; subsequently, the cloud becomes unstable and structures, by retaining the flute-like character of the perturbations (k‖=0).