The horizontal grid spacing of numerical weather prediction models keeps decreasing towards the hectometric range. We perform limited‐area simulations with the Icosahedral Nonhydrostatic (ICON) model across horizontal grid spacings (1 km, 500 m, 250 m, 125 m) in the Inn Valley, Austria, and evaluate the model with observations from the Cross‐Valley Flow in the Inn Valley Investigated by Dual‐Doppler LIDAR Measurements (CROSSINN) measurement campaign. This allows us to investigate whether increasing the horizontal resolution automatically improves the representation of the flow structure, surface exchange, and common meteorological variables. Increasing the horizontal resolution results in an improved simulation of the thermally induced circulation. However, the model still faces challenges with scale interactions and the evening transition of the up‐valley flow. Differences between two turbulence schemes (1D turbulence kinetic energy (TKE) and 3D Smagorinsky) emerge due to their different surface transfer formulations, yielding a delayed evening transition in the 3D Smagorinsky scheme. Generally speaking, the correct simulation of the mountain boundary layer depends mostly on the representation of model topography and surface exchange, and the choice of turbulence parameterization is secondary.