We used a surface forces apparatus to investigate layering transitions and frictional properties of chain alcohol films. All but the last two monolayers, strongly bound to each mica surface can be removed by squeezing. Unlike other systems however, chain alcohol films of undecanol and octanol were found to retain their bulk-like lubrication properties down to a thickness of only one (bi)layer. The transition where this last molecularly thin liquid layer is expelled from the gap proceeds in less than one second. From two-dimensional snapshots of the contact area during the expulsion process, we find that the boundary line between the areas of initial and final film thickness bends and roughens as it moves across the contact area. In the final state, we frequently find pockets of trapped liquid. Both the bending and roughening of the boundary line and the trapped pockets are due to a dynamic instability that we describe with a two-dimensional hydrodynamic model. The length scale of the roughening is determined by an elastic line tension.