The theory of collisional electrostatic modes that are driven unstable by a sheared field‐aligned ion flow velocity (i.e., Vi0 = V0(x)ez, B0 = B0ez) is presented. The instability threshold condition is |dV0/dx| > 2(1 + Ti/Te)νin, where νin is the ion‐neutral collision frequency, the characteristic longitudinal wavelengths λ∥ > λe, λe being the electron collision mean free path, and the transverse wavelengths λ⊥ > 21/2πρi, ρi being the ion gyroradius. The linearly unstable modes can account for fluctuations with transverse wavelengths ranging from a kilometer to several meters for only a moderate amount of shear (in the parallel velocity). Thus the instability provides a direct means of exciting almost the entire range of the observed (Basu et al., 1988) subkilometer scale irregularities in the auroral F region. The quasi‐linear analysis presented here shows that an effective viscosity describing momentum transport in the x direction can be derived in the presence of the shear‐driven fluctuations. The spatial profiles of the excited modes are evaluated from the solution of the appropriate dispersion equation. A model is proposed to describe the nonlinear evolution of the instability while ensuring that the characteristics of the turbulent fluctuation spectra resulting from it are consistent with those of the observed spectra.