In a unit square the biggest circle is of diameter 1.
In a unit cube I have reasoned that the biggest circle is $\sqrt{\frac{6}{5}}$
(EDIT:(Full solution: $r = \sqrt{\frac{n}{8}}$) This reasoning is wrong; there are larger circles, only read this section if you enjoy seeing me work out the radius of a specific non-maximal class of circles in hypercubes. See below for my working after seeing people's answers.)
In higher dimensions, I only speculate that the biggest circle has diameter $\sqrt{\frac{2n}{n+2}}$
My reasoning is as follows:
To find the plane on which the biggest circle would lie, it seems reasonable to pick the farthest two corners $(0,0,0), (1,1,1)$, and then pick the midpoint of the vertical edges $(1, 0, \frac{1}{2}), (0, 1, \frac{1}{2})$. This gives a rhombus with diagonals $\sqrt{3}$ and $\sqrt{2}$ (the diagonals of the cube and the square at height $\frac{1}{2}$, respectively), and side lengths all $\sqrt{1^2 + \frac{1}{2}^2} = \frac{\sqrt{5}}{2}$
Now, $(1, 0, \frac{1}{2}).(0, 1, \frac{1}{2}) = \frac{1}{4}$ so the cosine of the acute angle of the rhombus is $\frac{1}{4}/(\frac{\sqrt{5}}{2})^2 = \frac{1}{5}$, so the acute angle is $\cos^{-1}\left(\frac{1}{5}\right)$. The smallest distance between opposite sides (the height) of this rhombus is:
$$\begin{aligned} \frac{\sqrt{5}}{2}\cos\left(\frac{\pi}{2} - \cos^{-1}\left(\frac{1}{5}\right)\right) &= \frac{\sqrt{5}}{2}\left[\sin\left(\cos^{-1}(\frac{1}{5})\right)\right]\\ &=\frac{\sqrt{5}}{2}\sqrt{1 -\frac{1}{5^2}} \\ &=\sqrt{\frac{6}{5}}\end{aligned} $$
The circle centred at the centre of the rhombus has at most this diameter, since it will then meet the rhombus tangentially.
My reasoning is not rigorous, but here's how it extends to higher dimensions:
I presume the plane the circle lies on would include (wlog.) the diagonal of length $2$, $(0,0,0,0),(1,1,1,1)$
I also guess that the vectors $(1,0,\frac{1}{2},\frac{1}{2}),(0,1,\frac{1}{2},\frac{1}{2})$ define the plane. These have length $\frac{\sqrt{6}}{2}$, dot product $\frac{2}{4}$ and hence angle $\cos^{-1}(\frac{2}{6})$. The height would then be:
$$\begin{aligned} \frac{\sqrt{6}}{2}\left[\sin\left(\cos^{-1}\left(\frac{2}{6}\right)\right)\right] &=\frac{\sqrt{6}}{2}\sqrt{1 - (\frac{2}{6})^2}\\ &=\sqrt{\frac{8}{6}}\end{aligned}$$
And if this guess of a plane holds in dimension n: $$\begin{aligned} \left(1,0,\frac{1}{2},\frac{1}{2},\frac{1}{2},...\right)\cdot\left(0,1,\frac{1}{2},\frac{1}{2},\frac{1}{2},...\right) &= \frac{n-2}{4}\\ &= \left|\left(1,0,\frac{1}{2},\frac{1}{2},\frac{1}{2},...\right)\right|\\ &= \sqrt{\frac{n+2}{4}}\end{aligned}$$
gives angle $\cos^{-1}(\frac{n-2}{n+2})$
and height $\sqrt{\frac{n+2}{4}} \sqrt{1 - \frac{(n-2)^2}{(n+2)^2}}$
$= \sqrt{\frac{2n}{n+2}}$
So, on the assumption that this is a plane holding a circle of maximal diameter, the diameter would be $= \sqrt{\frac{2n}{n+2}}$, radius $= \sqrt{\frac{n}{4n+4}}$ so I could never fit a circle radius $\frac{1}{\sqrt{2}}$ in any hyper-cube.
I'm asking for either justification or correction of this method. Is it right to assume that the plane cuts out a rhombus in higher dimensions?
End of original question
As was pointed out by Mark Bennet, a maximal circle in a cube $[-1,1]^3$ lies in the plane through the origin normal to $(1,1,1)$ and has radius $\frac{\sqrt{6}}{2}$
Here, I try to generalise Mark Bennet's example: (Please read with a critical eye)
This plane intersects the cube at the six points whose coordinates have one $1$, one $-1$ and one $0$. These are the furthest points the plane reaches in the cube. The shortest lines between these points lie on the surface of the cube and can be expressed, symmetrically in the 3 coordinates, as $\pm(-1,t,1-t)$ with $ t \in [0,1]$ these lines make a hexagon with minimal distance $\sqrt{1+\frac{1}{2}^2 +\frac{1}{2}^2} = \frac{\sqrt{6}}{2}$ I've done this methodically so that I can generalise to higher dimensions.
In higher dimension n there are two cases:
n even:
In this case, the hyperplane through the origin normal to $(1,1,..)$ reaches all corners of the hypercube that have $\frac{n}{2} 1$'s and $\frac{n}{2} -1$'s. Now we must pick a basis for the plane in this hyperplane that contains the largest circle.
We can recover the circles given by @celtschk by using the basis vectors: $$\underbrace{(1,-1,1,-1\ldots,1,-1)}_{n}$$, and $$ \underbrace{(1,-1,1,-1\ldots}_{\frac{n}{2}} \underbrace{\ldots,-1,1,-1,1)}_{\frac{n}{2}}$$
That is, switching sign half way through so that they add to cancel the second half and subtract to cancel the first. Then the circle is given by:
$$\{(\underbrace{\cos\phi,-\cos\phi,\ldots}_{\frac{n}{2}}, \underbrace{\sin\phi,-\sin\phi,,\ldots}_{\frac{n}{2}})|0\le\phi\le 2\pi\}$$
(since $(\underbrace{1,-1,\ldots}_{\frac{n}{2}}0,0,\ldots)$ and $(0,0,\ldots\underbrace{-1,1,\ldots}_{\frac{n}{2}})$ are orthogonal, and $\phi = 0$ gives us their scaling.(largest scaling that fits in the cube))
which has radius $\sqrt{\frac{n}{2}}$
But can we pick a basis that gives a bigger circle?
n odd:


See http://home.lu.lv/~sd20008/papers/essays/Hypercube%20[paper].pdf . – John Hughes Dec 17 '17 at 18:09