Many powerful and variable gamma-ray sources, including pulsar wind nebulae, active galactic nuclei and gamma-ray bursts, seem capable of accelerating particles to gamma-ray emitting energies efficiently over very short time scales. These are likely due to rapid dissipation of electromagnetic energy in a highly magnetized, relativistic plasma. In order to understand the generic features of such processes, we have investigated simple models based on relaxation of unstable force-free magnetostatic equilibria. In this work, we make the connection between the corresponding plasma dynamics and the expected radiation signal, using 2D particle-in-cell simulations that self-consistently include synchrotron radiation reaction. We focus on the lowest order unstable force-free equilibrium in a 2D periodic box. We find that rapid variability, with modest apparent radiation efficiency as perceived by a fixed observer, can be produced during the evolution of the instability. The flares" are accompanied by an increased polarization degree in the high energy band, with rapid variation in the polarization angle. Furthermore, the separation between the acceleration sites and the synchrotron radiation sites for the highest energy particles facilitates acceleration beyond the synchrotron radiation reaction limit. We also discuss the dynamical consequences of radiation reaction, and some astrophysical applications of this model. Our current simulations with numerically tractable parameters are not yet able to reproduce the most dramatic gamma-ray flares, e.g., from Crab Nebula. Higher magnetization studies are promising and will be carried out in the future. Show Partial Abstract