In situ data of the Mediterranean Water undercurrents and eddies south of Portugal indicate that the undercurrents have a tubelike structure in potential vorticity and that dipole formation can occur when the lower undercurrent extends seaward below an offshore upper countercurrent. A two-layer quasigeostrophic model is used to determine the dynamical conditions under which dipole formation is possible. With piecewise-constant potential vorticity, the flow exhibits two linear modes of instability comparable to those found in the Phillips model with topography. Weakly nonlinear analysis and fully nonlinear simulations of the flow evolution agree on the regimes of either finite-amplitude perturbation saturation, corresponding to filamentation, or amplification, corresponding to vortex or dipole formation. This latter regime is more specifically studied: vortex dipole formation and ejection from the coast is obtained for long waves, with opposite-signed but similar amplitude layer potential vorticities. A simple point vortex model reproduces this phenomenon under the same conditions. It is then shown that dipole formation occurs for minimal wave dispersion, and hence for weak horizontal velocity shears. As observed at sea, dipoles are formed when the lower potential vorticity core extends seaward below a countercurrent.