In a good LARP it is desirable to separate the players out individually at some stage, because they are more suggestible and afraid when they are alone. Some form of individual challenge is probably the best way of doing this. One possible setting for this is a cave system, and it is probably one of the easiest to recreate realistically, and one of the most perfect for playing on fears of claustrophobia and darkness.
A small group of men stares intensely at something. Coming nearer, you see puppies, obviously still young, as they are small and only learn to walk. Cute as they are, the men look serious and exchange a comment here and there, making their mother nervous. But one man keeps her somewhat calm, while looking with others on the little ones.
The puppies are a completely new dog breed. The breeder hopes for better characteristics, the other men are mostly hunters and other dog-fanciers, that were called or came from own interest. If all looks well, they will have business. But now, they are just watching.
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A standard roleplaying environment: the tavern. This is another easy one to create in your own home, providing you have a large enough group of roleplaying friends. Let us assume your PC group is no larger than five, and that the rest of your friends can be NPCs. Let us also aim for an exceptionally seedy and unscrupulous city tavern.