A 20‐layer, 1/25° nested Gulf of Mexico (GoM) Hybrid Coordinate Ocean Model (HYCOM) has been employed to examine the evolving three‐dimensional ocean response to Hurricane Ivan during 14–16 September 2004. Results from several combinations of numerical experiments with and without assimilation of satellite‐altimetry sea‐surface height (SSH) are being analyzed and compared for the September 2004 hurricane period. A comparison of simulated zonal and meridional velocities using data assimilation shows improved agreement with profiler observations. The amplitude of the cold wake (∼6°C) produced by these simulations compared reasonably well with the observed changes in SST before and after the storm; however, the region of extreme cooling varied depending on the simulated location of the warm core eddy (WCE) that had detached from the Loop Current (LC). While the simulated location of the WCE and LC in the assimilation runs agree better with satellite altimetry, the storm‐induced SST cooling was 40%–50% greater than the observed cooling. Overall, ∼64% of the cooling was due to vertical mixing caused by turbulence generated from strong shear‐stress across the base of the mixed layer. Vertical advection (upwelling) caused a significant portion of cooling (23.4%) in those runs that included data assimilation; a three fold increase from the nonassimilative runs (7%). This enhanced upper‐ocean cooling was caused primarily by the prestorm thermal stratification; a shallower thermocline (∼40 m) and a stronger upper‐thermocline temperature gradient compared with the nonassimilative runs. In all the experiments the air‐sea exchange was a small component of the mixed‐layer heat budget which overall accounted for ∼4%.