Vatican City
Its territory is completely surrounded by Italy and it is only one of three countries in the world that are enclaves of another country (the others being San Marino, also in Italy, and Lesotho in southern Africa). Also, it is the only country in the world that is an enclave of a city, as all of the land around it is part of Rome, the capital of Italy. The Vatican City is a city-state, because all its territory is urban and built-up.