Decide whether or not dating your friend's sister is something to which you can seriously commit.
If you cannot see yourself with her for a long period of time, it is best to avoid asking her out on a date so as to keep your friendship with her sibling from failing as a result of tension after a breakup. Though you may think your friendship may last after your relationship with the sister has ended, it may change in unexpected and undesirable ways.
Talk to your friend before you talk to your friend's sister about your dilemma.
Tell him that you only have the best intentions with his sister, and that you will treat her with respect. Be honest with him about how you feel, telling him that you feel something for her that just won't go away. Tell your friend that you don't want your friendship to change, or for there to be any awkwardness between the three of you. Make your friend feel comfortable enough to tell you how he feels about the situation, and if he does not give his approval, consider letting the prospect of dating his sister go.
Make sure the sister actually returns your affection.
If there is no chemistry between the two of you, and you have never even talked to her, perhaps you should get to know her first before you ask her out on a date, so as to keep yourself from an awkward situation if she were to turn you down.
Ask the sister on a date.
Reassure her that you have talked to her sibling first, and that you just want to get to know her better on your own. Be calm and confident, and above everything else, be a gentleman. If you act like a jerk or treat her badly, your friend will not approve, and you might lose your chance of becoming close to the sister as well as your relationship with your friend.