The mechanisms responsible for the initial growth of sand waves on the surface of a settled layer of particles are studied experimentally and theoretically. Experiments employ water-glycerin solutions of 1-14 cP and glass spheres (rho(s) = 2.4 g/cm(3)) that are either 100 or 300 mu m in diameter. The particle Reynolds number and Shields parameter are of order one and the flow Reynolds number is of order 1000 to 10,000. Experimentally obtained regime maps of sand wave behavior and data on the wavelengths of the sand waves that first appear on the surface of the settled bed are presented. Turbulence in the clear liquid is not necessary for formation of waves and there is no dramatic change in behavior as the flowrate is increased across the turbulent transition. The initial wavelength varies as the Froude number to the first power. Because a flowing suspension phase is observed before waves form, linear stability analysis of the clear-layer-suspension-layer cocurrent two-phase flow is presented. The suspension phase is modeled as a continuum that has an either constant or exponentially increasing viscosity. Neither of the models correctly predicts the wavelength for the first observed waves, their growth rate or their speed. However, the initial wavelength is found to agree well with the trajectory length for a saltating particle obtained from a model for forces on individual particles.