The local dispersion relation for the lower‐hybrid‐drift isntability is derived in a fully self‐consistent manner including the finite‐beta effects associated with (a) transverse electromagnetic perturbations (&dgr;B≠0), and (b) resonant and nonresonant h&slash;B0electron orbit modifications. Moreover, the analysis is carried out for arbitrary values of local &bgr;=8&pgr;n(Te+Ti)/B02,Te/Ti, &ohgr;2pe/&ohgr;2ce, andVE/vi. (Here,VEis the cross‐field E×B velocity, andviis the ion thermal speed.) For all parameter regimes studied, the net effect of finite plasma beta is to reduce the maximum growth rate &ggr;mof the lower‐hybrid‐drift instability. The details, however, vary, depending on plasma parameters. For example, ifTe≪TiandVE<vi, then the maximum growth rate is reduced by a factor (1+&bgr;i/2)−1/2, relative to the value obtained when &bgr;i=8&pgr;nTi/B20→0. On the other hand, forTe≈Ti, there exists a critical value of plasma beta (&bgr;cr) such that the lower‐hybrid‐drift instability is completely stabilized (&ggr;<0) for &bgr;≳&bgr;cr.