Setting up GraphQL in your Ruby on Rails application involves a few steps. First, you need to add the 'graphql' gem to your Gemfile and run 'bundle install'. Then, you can generate a GraphQL schema by running 'rails generate graphql:install'. This will create several files and directories in your application, including a schema file, a directory for your types, and a directory for your resolvers. You can then start defining your types and resolvers, and add queries and mutations to your schema.