Generalized Kelvin–Helmholtz (GKH) instability is examined as a mechanism for the saturation of zonal flows in the collisionless regime. By focusing on strong turbulence regimes, GKH instability is analyzed in the presence of a background of finite-amplitude drift waves. A detailed study of a simple model with cold ions shows that nonlinear excitation of GKH modes via modulational instability can be comparable to their linear generation. Furthermore, it is demonstrated that zonal flows are likely to grow faster than GKH mode near marginality, with insignificant turbulent viscous damping by linear GKH. The effect of finite ion temperature fluctuations is incorporated in a simple toroidal ion temperature gradient model, within which both zonal flow and temperature are generated by modulational instability. The phase between the two is calculated self-consistently and shown to be positive. Furthermore, the correction to nonlinear generation of GKH modes appears to be small, being of order O(ρi2k2). Thus, the role of linear GKH instability in the saturation of collisionless zonal flows, in general, seems dubious.