The effect of finite parallel wavenumber and electron temperature gradients on the lower hybrid drift instability is studied in the parameter regime corresponding to the TRX‐2 device [Fusion Technol.9, 48 (1986)]. Perturbations in the electrostatic potential and all three components of the vector potential are considered and finite beta electron orbit modifications are included. The electron temperature gradient decreases the growth rate of the instability but, forkz=0, unstable modes exist for &eegr;e(=T’en0/Ten0)>6. Since finitekzeffects completely stabilize the mode at small values ofkz/ky(&bartil;5×10−3), magnetic shear could be responsible for stabilizing the lower hybrid drift instability in field‐reversed configurations.