According to a previously published linear analysis, the tidal distortion of accretion disks in binary star systems produces a local hydrodynamic instability to m=1 internal waves, which may have arbitrarily small wavelengths in the absence of viscosity. The instability is three-dimensional and approximately incompressible. To explore the nonlinear outcome of this instability, we develop a shearing-sheet approximation on scales comparable to the disk thickness. The large-scale azimuthal variation of the disk is represented by varying the local metric with time (local orbital phase). The hydrodynamic equations can then be posed two-dimensionally on local meridional planes. We solve these equations with a second-order gasdynamical code based on the Total-Variation-Diminishing scheme. Our simulations confirm the predicted linear growth rate. The modes saturate chaotically at velocities scaling as the product of the linear growth rate and the wavelength. If the wavelength is small compared with the disk thickness, the modes remain nearly incompressible even when nonlinear. The two-dimensional power spectrum of velocities after saturation is roughly isotropic and extends over a broad range of scales in an approximately power-law fashion. We measure the heating rate associated with the nonlinear dissipation of the modes. The dissipation implies a secular torque on the disk and a return of angular momentum to the secondary star via the tidal potential. The estimated torque is some what larger than the tidal torque produced by maximal disk viscosity (alpha similar to 1). At least in these two-dimensional simulations, however, there is no significant angular momentum flux within the disk