Yes, it can be done, but remember chroot restricts whomever or whatever is inside the jail to just what's in the jail with them. Meaning they can not access any applications or files not installed inside the jail. For instance, if you simply run "chroot /tmp" as root you will get an error about not being able to find /bin/bash because there is no /bin/bash inside the jail. But if you copy /bin/bash to /tmp/bin/bash and any dependancies it has into the jail as well, it will work. You can not simply prevent a user from moving about the file system while at the same time allowing the user to use those files. Make sense? Anyway here is a link to a project that sets it up for you.
You could also setup Virtual Machines which are completely separate systems all running on and sharing the same hardware. But at the end of the day the simpliest thing to do is to not give shell access to those you do not trust, else you are just asking for trouble.