To set up a custom error reporting system using Twilio SendGrid and Django, you need to create a Django project with a virtual environment, install Django, and configure the project structure. You then need to set up logging, environment variables, and a configuration file for sending emails to teams. Next, you create a new Django app specifically for error reporting, register it in the main project's settings.py file, and define URLs for the view. Finally, you test your work by running the Django development server and verifying that the app captures and processes information correctly. The system also includes troubleshooting tips to help resolve any issues that may arise during setup or usage.