Instability and mesoscale motion in the Norwegian Coastal Current are investigated, with particular reference to explaining why recurrent anticyclonic eddies are observed in the area off the southern tip of Norway. A numerical simulation is performed for the year 2001 with a continuously stratified, σ coordinate ocean model. The model results are analyzed by combining energy diagnostics with potential vorticity analysis. The model produces recurrent anticyclonic eddies in the area of observed eddy activity. Both barotropic and baroclinic instabilities are found along the coast east of the recurring eddy region, i.e., upstream in the Norwegian Coastal Current. Very few signs of instability are seen in the eddy region itself. This indicates that the origin of the eddies is farther east and that both barotropic and baroclinic instabilities contribute to the generation of the eddies. The instability vary considerably throughout the year, with most instability in the autumn and winter and least instability in the summer. A correspondence between this seasonal dependency of the instability and outbreak events of low-salinity water from the Skagerrak is found. In the aftermath of every simulated outbreak event an anticyclonic eddy is seen off the southern tip of Norway, reflecting that the outbreak events initiate stronger instability and thereby are responsible for the generation of the anticyclonic eddies.