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.
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.
Found written on a torn single page…
“Lay thee patiently and still upon the ground, contemplating the Leper Star in the firmament, 'neath a crescent moon, ‘midst the graves of a boneyard 'til the G’na-Shennu come crawling up from the foetid earth. Fear them not. Let them rage about thee, casting ghoul-dust from their chalky talons and scalps,'til they calm, and so begin to whisper their secrets. Then shall they solemnly withdraw into the earth once more, in peace."