Go to Control Panel → Users and Groups → Groups.
To create groups, mouse over Create:

OPTION 1: Create a single group - choose an option from the Single Group section.
OPTION 2: Create multiple groups at once - choose an option from the Groups Sets section.
Select the enrollment option for your group(s):
1. Manual enrollment involves the Instructor selecting each member one at a time from a list of all the students in the Course.
2. Random Enrollment is best suited for multiple groups, where the Instructor allows the system to divide up all the members of the Course among all the groups based on criteria chosen by the Instructor.
3. Self Enrollment allows the students themselves to become members of groups by using Sign-Up Sheets that Instructors create for each Course Group.
Type a Name and optional Description on the Create Group page.
Select Yes to make the Group Available or select Sign-up Sheet Only.
Select the Tools available to the Group by selecting the appropriate check boxes.
Select the Grade option and type Points possible for Blogs, Journals, and Wikis, if student submissions will be graded.
Select the checkbox for Allow Personalization to allow individual Group members to add Personal Modules to their Group Homepage.
Depending upon enrollment type:
1. For Self-Enrollment, select the Sign-Up Options, including titling the Sign-up Sheet.
2. For Random Enrollment, add values for:
  
  Determine Number of Groups by number of students or number of groups
  Determine How to Enroll any Remaining Members
3. For Manual Enrollment, in the Membership section, select the students from the Items to Select box and click the right-pointing arrow to add the selected names to the Selected Items box.
Select the Maximum Number of Members.
Click SUBMIT.