Using a three‐dimensional particle‐in‐cell simulation, we investigate the formation of dawn‐dusk asymmetry in Earth's magnetotail. The magnetotail current sheet is compressed by an external driving electric field down to a thickness on the order of ion kinetic scales. In the resultant thin current sheet (TCS) where the magnetic field line curvature radius is much smaller than ion gyroradius, a significant portion of the ions becomes unmagnetized and decoupled from the magnetized electrons, giving rise to a Hall electric field Ez and an additional cross‐tail current jy caused by the unmagnetized ions being unable to comove with the electrons in the Hall electric field. The Hall electric field transports via E × B drift magnetic flux and magnetized plasma dawnward, causing a reduction of the current sheet thickness and the normal magnetic field Bz on the duskside. This leads to an even stronger Hall effect (stronger jy and Ez) in the duskside TCS. Thus, due to the internal kinetic effects in the TCS, namely, the Hall effect and the associated dawnward E × B drift, the magnetotail dawn‐dusk asymmetry forms in a short time without any global, long‐term effects. The duskside preference of reconnection and associated dynamic phenomena (such as substorm onsets, dipolarizing flux bundles, fast flows, energetic particle injections, and flux ropes), which has been pervasively observed by spacecraft in the past 20 years, can thus be explained as a consequence of this TCS asymmetry.