Oracle Backup & Recovery Techniques - Oracle 10g Database Administration Concepts and Implementation Made Simple - page 332

How to activate Automatic Undo Management feature?
Automatic Undo Management requires locally managed
tablespace and it is done at the time of creation of database or
creation of undo tablespace. By default tablespaces are created as
locally managed unless you specify dictionary explicitly. Its
recommend to create locally managed tablespaces and let Oracle
mange the storage at the extent level.
-- At the time of database creation
CREATE DATABASE mydb1
CONTROLFILE REUSE
LOGFILE
GROUP 1
('/mydatabases/mydb1/log01a.log',
...
UNDO TABLESPACE undotbs_01
DATAFILE 'C:\Oracle\Ordata\mydb1\ undotab .dbf'
SIZE 500M REUSE AUTOEXTEND ON;
OR
-- At the time of undo tablespace creation
CREATE UNDO TABLESPACE undotab
DATAFILE 'C:\Oracle\Ordata\mydb1\ undotab .dbf'
SIZE 500M REUSE AUTOEXTEND ON;
If you set the UNDO_MANAGEMENT initialization parameter
to AUTO then Oracle Instance will automatically create undo
tablespace. UNDO_MANAGEMENT is a static parameter and
can be altered using the following statement with SCOPE option
set to SPFILE.
SQL> ALTER SYSTEM SET
UNDO_MANAGEMENT=AUTO SCOPE=SPFILE;