Open the prefab that you want to edit in ‘prefab mode’. Then drag another prefab inside the hierarchy of the open prefab. This prefab will now be part of the open prefab as a nested prefab.
The nested prefab will still keep the connection to its own original prefab asset. Therefore, it will still be updated when the original prefab asset is modified.
You should always edit the original prefab asset and not a nested prefab. When you edit the original prefab asset, the changes will automatically propagate to all nested prefabs in your project.
Edit a nested prefab in the same way as a regular prefab. Either double-click the original prefab asset, click the arrow in the Hierarchy Window, or click ‘Open’ in the Inspector.
If you are already in ‘prefab mode’ for the parent prefab then you can still click the arrow on a nested prefab, and it will take you one level deeper. Opening prefab mode for the nested prefab.
Use the Breadcrumb Bar to see which prefab you are editing and to navigate between nested prefabs and their parents.