Folder creation missing in mail.

How are you trying to create a new folder in the sidebar?

There is an unfortunate, confusing naming asymmetry in the commands - to create a folder for smart mailboxes you use the command "Mailbox > New Smart mailbox folder", but to create a new folder for standard mailboxes in any of your accounts, you simply create a new Mailbox with "Mailbox > New Mailbox". And then drag mailboxes into the new mailbox. Or create a new mailbox inside an existing mailbox. As soon as you create or move a mailbox into another Mailbox, the containing Mailbox will turn into a mailbox folder.

Boot into Safe Mode according to Start up your Mac in safe mode - Apple Support and test to see if the problem persists. Reboot normally and test again.

NOTE: Safe Mode boot can take up to 3 - 5 minutes as it's doing the following; 

• Verifies your startup disk and attempts to repair directory issues, if needed

• Loads only required kernel extensions (prevents 3rd party kernel/extensions from loading)

• Prevents Startup Items and Login Items from opening automatically

• Disables user-installed fonts 

• Deletes font caches, kernel cache, and other system cache files

What Mac model and year do you have?

Have you installed or run any "cleaning", "optimizing", "speed-up", VPN or anti-virus apps on your Mac?

Is it one of the folders you've created on your hard drive?

Can't you just drag the folder into the sidebar?

What happens when you try to drag the desired folder into the sidebar of a Finder window?

I have finally upgraded, and folder creation works just as it always has.

So, I have to ask again: what happens when you try?

Note: in case you are wondering, there is no distiction between "mailbox" and "folder". Just like a folder in the Finder, a mailbox can contain messages, and other mailboxes/folders. I wonder if that what was tripping you up.

This is not new in Monterey.

The thing is that a Smart Mailbox is different from a regular mailbox.

A folder of mailboxes is the same as a mailbox.

A regular mailbox can contain other mailboxes. A Smart Mailbox defines a set of criteria to determine which messages it contains. A folder of mailbox is a way to group them together in the sidebar, nothing else. It is neither a mailbox nor a smart mailbox.

What exactly happens when you try to create a new folder? Is this under an e-mail account, or uner “On my Mac”?