Not using Wayland I am not 100% sure, I think Xephyr works in XWayland and I think their is a similar tool to Xephyr for setting up an embedded Wayland session (I would have thought this is even easier and more elegant in wayland but not sure). So could be even better.

I personally use X11 as I am on exwm and exwm does not support wayland and no alternative to it does AFAIK (I think theirs a POC floating around somewhere). Also I know X11 even though it's a bit crap in many ways it's the devil I know.