Italy has a number of the world's smallest countries actually contained within its borders, from the hilltown Republic of San Marino to the world's most famous theocracy: Vatican City
Italy's nano-countries are each curious cases, vestiges of a Eruope long-since passed that owe their odd status to a weird alchemy of warring principalities, Crusading monks, Medieval theocracies, even Fascist dictators. Never fear, however: All use the euro as a currency, and all speak Italian (though two do issue their own stamps, and the Vatican Post Office is far more effiicient than the Italian one).
Two of the top sights in Rome—all of Italy, real—are St. Peter's and the adjacent Vatican Museums (home, among others things, to the Sistine Chapel). However, these sights are not actually in Rome. In fact, they are not, technically, in Italy at all.
The Vatican is the world's smallest nation and second smallest sovereign state, a theocracy ruled by the pope with about 1,000 residents (some 550 of whom are Vatican citizens) living on a scant 44 hectares of land—that's about 109 acres, or a mere 0.17 square miles.
This odd arrangement has existed ever since the 1929 Lateran Pact with Italy's government, which ended an uncomfortable 58-year standoff and granted the Vatican sovereign status over this scrap of central Rome.
See, for centuries, the Pope had ruled over a large swathe of southern central Italy called the Papal States, which at their 19th century height extended north to Ferrara, encompassing much of the modern-day regions of Emilia-Romagna, Le Marche, Umbria, and Lazio.
Then Piemonte king Vittorio Emanuele II sent Garibaldi and his Redshirts to conquer or treat with the various kinddoms, duchies, and principalities that pathworked the peninsula in the 1860s, knitting them into a new nation of Italy. Papal control over its vast historic holdings slowly shrank to cover just Lazio, and then just Rome itself, still girded and protected by its mighty walls.
After Garibaldi's troops finally breached the Gate of Porta Pia and occupied Rome in 1870, the Pope managed to hold onto the Borgo neighborhood—basically Vatican City and his nearby papal fortress, Castel Sant'Angelo. The King was actually willing to grant the papacy control over that area, known as the Leonine City since it was enclosed by ninth-century walls erected by Pope Leo III. But Pope Pius IX wanted to hold out for more—he wanted the vast Papal States back—so he refused the treaty.
Pius and subsequent Popes continued to live in Vatican City as kind of free-range prisoners for the next six decades until (of all people) Mussolini negotiated the Lateran Pact solution, which allowed the Vatican to remain under its own (i.e.: the Pope's) sovereign control—basically what was offered back in 1870, only for an even smaller bit of land; not the entire Leonine City, but just the Apostolic palace (the Vatican and St. Peter's), Castel Sant'Angelo, and a few outlying buildings. Thus has it remained.
Notice way back when I called the Vatican the second smallest soverign state in Italy? Sharp-eyed trivia hounds (who already knew all about the Vatican being its own country) might have thought I made a mistake there. I did not.
That begs the question: Which sovereign state within Italy is smaller than the Vatican?
Interestingly enough, the smallest independent state in the world also happens to be contained within Rome.
The Knights of Malta
The Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and of Malta —better known simply as "The Knights of Malta"—is a charitable brotherhood and a bona-fide vestige of the medieval Crusades, established in 1099 and still devoted to running hospitals and performing other good works.
The Order was booted off its namesake island in 1789 and, since 1834, has made its headquarters in Rome, currently at Via dei Condotti 88. Other sovereign landholdings scattered across the city, most famously its Villa del Priorato di Malta on the Aventine Hill, the peekaboo view of St. Peter's dome through its keyhole made famous on many a postcard.
The Order's soveriegn status is a bit weird, partly recognized by the U.N. and other world bodies, but always as a special case.
However, since Italy considers the Order's land holdings within Italy to enjoy extraterritorial status, it counts as a seperate state (if not a full-fledged country)—at least in Rome.
Republic of San Marino
By comparison to the Knights of Malta and the Vatican, the third microstate contained within Italy is positively enormous.
The 61 km2 (24-square-mile) Republic of San Marino is bacially just a large hilltown on the border beteen Le Marche and Emilia-Romagna that has somehow managed to remain an independent state since way back in AD 301 (its constitution dates to 1600).
San Marino makes its living as a island of cultural oddity (tourism; their own stamps) and a tax haven (banking; duty-free electronics; easy-to-buy firearms).