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With the New Folder option turned on for a document library that has document sets enabled, the New Folder option is only available on the library itself, not within a Document Set. When viewing in Windows Explorer a new folder can be created within a Document Set.

Does anyone know of a way to enable the New Folder option on the ribbon within Document Sets?

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It looks like folders aren't offically supported by Microsoft within Document Sets. See the Document Sets planning (SharePoint Server 2010)

From the document:

Folders are not allowed in document sets, and metadata navigation cannot be used in a Document Set

There may be an unsupported way, but it will likely cause problems.

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  • Do you know a) why and b) if this has changed in Sharepoint 2013?
    – danieldekay
    Commented Jul 14, 2014 at 15:12
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Yes folders inside document sets are not supported but in share point 2013, it has changed https://sergeluca.wordpress.com/2014/06/04/sharepoint-2013-and-folders-in-document-set-why-i-needed-it/

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