A three-dimensional nonlinear study of the turbulence and sheared flow, generated by the gradient drift instability with ion inertial effects in the high-latitude plasma patches, is presented. Numerical simulations demonstrate quasi-two-dimensional turbulence with irregularities aligned along the magnetic field direction. Power spectra of the velocities in the plane transverse to the magnetic field and the density irregularities display anisotropy in the turbulence. Secondary Kelvin-Helmholtz instability of the gradient drift elongated vortices tends to isotropize the spectra. Ion-neutral collisions determine the level of the shear flow and therefore the saturation level of density and potential fluctuations. The irregularities penetrate through the entire patch due to the nonlinear development of the instability and do not remain localized on the edges of the plasma patch. The computed spectra and spatial structures, observed by DE 2 satellite in the midnight-noon direction, are in good agreement. The inertial terms unify the gradient drift and Kelvin-Helmholtz instabilities, the sources of small-scale structures generated in the polar cap plasma patches, and give rise to irregularity characteristics which are in a good agreement with general features of the observed structures. ¿ 2001 American Geophysical Union