Vatican City is the smallest sovereign state whose entire territory lies within another capital city: Rome.
The city-state occupies a walled enclave on the western bank of the Tiber River, inside the Italian capital. Its territory includes St Peter's Square, St Peter's Basilica, the Vatican Museums, the Apostolic Palace, and the Vatican Gardens.
Vatican City became independent in 1929 through the Lateran Treaty between the Holy See and Italy. The arrangement gave the pope territorial sovereignty and ensured that the central government of the Catholic Church could operate independently of Italy.
Monaco is also an extremely small urbanized state, but it is an independent coastal principality rather than an enclave inside another country's capital. San Marino is surrounded by Italy but lies outside Rome, on Mount Titano.