We study ion-induced instability of flute-like (kz [approximately equal to] 0) diocotron modes in pure electron plasmas confined in a cylindrical Penning-Malmberg trap. In the absence of positive ion contamination, the low m diocotron modes are either neutrally stable (for m = 1) or weakly damped (for m = 2,3...) by Landau resonance on electrons corotating with the diocotron waves. By adding a small fraction (<1%) of positive ions into a double-well confinement configuration, we observe exponential instability of low m diocotron modes. The growth rates m are directly proportional to the overall ion fraction, Ni/Ne, and proportional to an effective charge separation of electrons and ions in the periodic wave perturbation.