Microsoft recommend “flat structure”, i.e. no subsites. So SPO admins are disabling subsites creation at tenant level. Did you know that you still can create subsite? Let me explain how it is done.

If creation subsites is allowed, you should be able to see it like this:

But actually subsites are not always best practice. Microsoft recommend “flat structure”, i.e. instead of subsite you should have a separate site collection, and if you need a hierarchy and navigation – use Hub sites. So, in Office 365 SharePoint admins usually “disable” SubSites creation:

Now, you see, SubSites are not really disabled, but only the button to create subsites is hidden: “This controls whether the Subsite command appears on the New menu on the Site contents page”.

Anyway, the result is: you are not able to create a SubSite (web) in SharePoint Online:

Actually there are at least 3 options to create a SubSite:

Option 1. Create a SubSite in Classic mode.

Step 1: Select “Site Contents” page
Step 2: Click “Return to classic SharePoint”
Step 3: Create SubSite

Option 2. Create a SubSite from “Sites and Workspaces” page

Step 1: Go to “Site Settings”
Step 2: Select “Sites and Workspaces” page (site/_layouts/15/mngsubwebs.aspx)
Step 3: Create a SubSite

Option 3: use PowerShell PnP

Step 1: Install PowerShell PnP
Step 2: Connect to your site with PnP
Step 3: create a SubSite

Install-Module SharePointPnPPowerShellOnline
Connect-PnPOnline -Url <your site Url> -UseWebLogin
New-PnPWeb -Url "<new Web Url>" -Title "MySubSite" -Template "STS#3"

References:

• SharePoint information architecture
• Microsoft PowerShell PnP
• SharePoint Hub sites

See also: How to create a SharePoint Site in Office 365 if site creation is disabled