The nonlinear evolution of the transverse instability of plane envelope soliton solutions of the nonlinear Schro¨dinger equation is investigated. For the case where the spatial derivatives in the two‐dimensional nonlinear Schro¨dinger equation are elliptic a critical transverse wavenumber is found above which the soliton is stable. Application of the multiple time scale method near this critical transverse wavenumber gives a dynamical equation for the nonlinear evolution of the transverse instability. Nonlinearity is found to enhance the growth of the linearly unstable mode. The results are discussed in connection with soliton collapse.