How do I create a Sector in Stellaris?

As shown in this dev diary, starting in version 2.3 the option to form a sector is located in the planet window. The button has the "three hexes" sector icon and a plus sign, like so:

This will create a new sector centered on the chosen system that includes all other systems within four jumps. Your capital starts out as the center of the core sector, and any colonies you found within four systems will join that sector automatically.

Note that the option to create a sector only shows up if the selected planet is not already part of a sector. For non-core sector worlds that button disbands the sector, for core sector worlds it allows you to move your capital, and for your capital it does nothing.