Numerical simulations are used to study gravity wave (GW) propagation, instability, and breaking in the lower thermosphere. Compressible effects are accounted for via an anelastic formulation of the equations of motion and we employ a realistic description of the background thermodynamic state. An initially low-amplitude, monochromatic GW with horizontal wavelength 60 km and intrinsic frequencyN/3.7 is introduced at the lower boundary and allowed to propagate to higher altitudes. The GW steepens as it propagates upward and displays instability and breaking over the altitude range ∼120–160 km. The effects of momentum deposition due to viscous attenuation and wave breaking are studied by comparing simulations which either include or exclude induced changes to the mean wind. These two cases also bound the range of expected behavior for horizontally localized GW packets. When induced changes to the mean wind are excluded, instability and turbulence occur over a broad altitude range spanning several vertical wavelengths. In contrast, the region of instability and turbulence is confined to a much more limited altitude range when induced mean wind effects are included. Wave breaking and turbulence in this case are largely confined within a shear layer formed by GW momentum transport. In time, the shear layer evolves into a critical level which consumes nearly all of the incident GW energy.