Vatican City is an enclave within Rome, the capital of Italy.
Vatican City is a landlocked sovereign city-state surrounded by the city of Rome. It occupies roughly 49 hectares and is the world’s smallest independent state by area. The state is governed by the pope and serves as the territorial centre of the Catholic Church, while the Holy See conducts the Church’s international diplomacy and administration.
Its modern independence was established by the Lateran Treaty, signed in 1929 between the Holy See and the Kingdom of Italy. The agreement resolved the long-running dispute over the pope’s territorial status after the Papal States were absorbed into unified Italy in the 19th century.
Vatican City includes St Peter’s Basilica, St Peter’s Square, the Apostolic Palace and the Vatican Museums, home to the Sistine Chapel. Although it is a separate country, its streets, walls and landmarks are physically embedded in Rome, which is why the answer is the Italian capital rather than Italy itself.