The Kelvin-Helmholtz instability in a thin velocity shear layer is analyzed in a two-fluid plasma. In the system treated here, electrons are treated as a massless, charge neutralizing fluid, and the ion inertia effects appearing through the Hall term and the electron pressure term in the generalized Ohm's law are added to the usual MHD system of equations. Linearized equations are derived and solved numerically for the parallel (V0∥B0) and the perpendicular (V0⊥B0) geometries. Although the growth rates are only slightly affected by the ion inertia effect for both configurations, the structures of the eigenmodes become highly different when the modes have spatial dependences along the background magnetic field. The implication of the present results for the magnetopause boundary layer is discussed. ¿ American Geophysical Union 1991