High resolution mesoscale and microscale simulations of wave breaking and laminated structures induced by mountain waves in the upper troposphere and lower stratosphere (UTLS) are presented. To resolve multi-scale physical processes in the UTLS region, vertical nesting and adaptive vertical gridding have been developed and applied in the nested mesoscale/microscale simulations. The inner nest of the Weather Research and Forecasting (WRF) mesoscale code is coupled with a sequence of embedded microscale nests, both horizontally and vertically. The fully three-dimensional, moist, compressible Navier-Stokes Equations are solved with a stretched, adaptive grid in the vertical and improved resolution in the UTLS region. For nesting, both lateral and vertical boundary conditions are treated via relaxation zones where the velocity and temperature fields are relaxed to those obtained from the microscale inner nest. Real-case simulations based on initial and boundary conditions from high resolution T799L91 ECMWF analysis data are conducted for the Terrain-induced Rotor Experiment (T-REX) campaign of measurements. Localized sharp shear layers and stiff gradients of potential temperature and vertical velocity are predicted above the tropopause and in the lower stratosphere within the embedded microscale nest. We describe fully three-dimensional multi-scale dynamics of laminated structures and clear air turbulence layers observed in the UTLS region during TREX. Depending on atmospheric conditions, the gravity waves might be trapped at the altitude of the atmospheric disturbance or propagate into higher altitudes acquiring characteristics of inertia-gravity waves. Three-dimensional instabilities in non-parallel shear stratified flows such as those induced by polarized inertia-gravity waves in stably stratified stratospheric environments are characterized by the polarized Richardson number.