Can I unzip a file in My Drive?

Yes, on paid plans — nothing has to come down to your computer first. In My Drive, right-click the archive (or click its ⋯ button) → Extract / Unzip. It works on .zip, .rar, .7z, .tar, .gz, .tgz and .bz2 files. We unpack it on the server, into the same folder as the archive, and you can follow it in the Activity panel (the activity icon in the top bar). A password-protected archive asks for its password first. Your email must be verified.

On the Free plan the option is in the menu too, but it answers "Please upgrade to use this feature." On Free, download the archive and unzip it on your own device — or upgrade to unzip it in My Drive. Files on a connected cloud drive can't be unzipped there: copy the archive to My Drive first.