Microsoft has given us the ability to create a sandbox environment based on the Dynamics 365 platform. This will allow you to try out new setups, extensions, and even develop new extensions in a safe isolated environment. This is perfect for testing new extensions in a true Dynamics 365 environment.
Each Dynamics 365 subscription is allowed to create one sandbox environment for no additional charge. You can even tear down and reset your sandbox as necessary.
To create a sandbox environment:

  1. Sign in to your production instance of the Financials service.
  2. Choose the Search for Page or Report icon, enter Sandbox Environment, and then choose the related link
  3. Select Create.
    Another tab in your browser will open for finishing the setup of your sandbox environment.
  4. When the sandbox environment is ready, you will be redirected to sandbox environment’s Welcome wizard.
  5. Choose Learn more to read about scenarios that you can try in a sandbox environment. Or, choose Close to continue to the Role Center of your Financials sandbox instance.
  6. At the top of the Role Center, a notification appears to inform you that this is a sandbox environment. You can also see the type of the environment in the title bar of the client.

Once the sandbox has been created, you can access each environment directly with the following URLs:

  • Production:  https://TENANTNAME.financials.dynamics.com
  • Sandbox:  https://TENANTNAME-sandbox.financials.dynamics.com

For more information, see the original Microsoft article here.
Happy coding!