The diegesis is the world of the narrative. It includes objects, events, spaces and the characters that inhabit them, including things, actions, and attitudes not explicitly presented in the work but inferred by the audience. That audience constructs a diegetic world from the material presented in a narrative. The narrator may or may not be inside the diegesis (extra- (outside) or intra- (inside) diegetic). Note that this formulation of extra- and intra- diegetic differs from and is simpler than the classic formultaion of Genette (homo- hetero- extra- and intra- diegetic and combinations thereof)*. This is so for two reasons: the first is that the diegesis in a narrative environment is typically constructed of real thing: real place, real objects, real people; the second is that we have found that we do not need such a complex formulation as Genette proposes - inside and outside suffices.
A diegesis may contain other narratives, in which case the narrative it belongs to is called a framing narrative. Stories that are told (usually by characters) within the main narrative are part of its diegesis, but also each has its own internal diegesis. If the diegeses of these subnarratives are related to the diegesis of the framing or master narrative, then in narrative environment design we call the framing narrative a meta narrative.
The diegesis is an important concept in narrative environment design because it will most likely contain real places, spaces, objects. Because the audience (narratee) is in direct physical relationship to these elements, the borderline between intradiegetic (part of the narrative’s world) and extradiegetic (outside the narrative’s world) can be extremely porous, making metalepsis comparatively easy. This is a powerful tool for engaging the narratee. See intradiegetic narratee and metalepsis.
*See under “Voice’ in Genette, Gerard; Narrative Discourse: An Essay in Method (Cornell University Press, 1980)
Narrower terms:Metalepsis - extradiegetic - intradiegetic