We observe a polarization instability in circularly symmetric vertical‐cavity surface‐emitting lasers. A relatively long time, 3–5 ns, is required to establish a dominant polarization state. Under high‐speed digital modulation this leads to strong enhancement, 20–30 dB, in polarization resolved low‐frequency relative intensity noise. This polarization instability is accurately described by a simple rate‐equation model. A similar increase in relative intensity noise, under dc bias, is caused by energy partition between orthogonally polarized modes.