Depends what you have available, but assuming you don’t have a slotter attachment on a mill, there are a few approaches to consider. One is to find a piece of similar material to the flywheel, eg probably cast iron, and turn a plug to just fit the hole. It should be flush both sides. Loctite it into place. Now make a centre punch mark exactly on the line where the flywheel and plug meet. Drill through with a drill that is the same size or a little less than the desired keyway size. This should be good drill, we don’t want it wandering off, and this is also why the material should be the same. Once the hole is through, remove the plug.
Now you have removed 78.54 % of the material you need to, so get a square file and carefully file out the rest. The hole will guide you so you should be able to make a nice job of it. Have a piece of key steel the right size handy to try, it is usually not too hard to make a nice keyway like this. The ones in the shaft are usually no problem, provided you havea vertical mill. If you don’t, the old time approach was to mark out and drill a hole at each end, then carefully chisel out the material between. I saw one the other night where the ends were square to match the key, which was a very neat fit.
regards
John