Why not create an island aprox. 9 squares big for newbies out in the Pacific. Have all Encounters turned Way down to easy mode with no loot, and just a few small locations available to visit. If you die on Nooby Island, you merely get knocked out and Care Taker NPC will spawn to fight off your attackers, and revive you but loot everything except what you are wearing and armed with. Beginner quests will show players how to navigate the game.
Background Info for Nooby Island:
Nooby island is the location of the orphanage where you were deposited by a do-gooder. Resources on the island are limited, so you after proving yourself valuable to the Orphanage they agree to let you go on a trade voyage with them to San Francisco via Boat. Alternately you can craft a raft with some wood and rope. Using a handmade raft is always a bad idea, you will randomly wash ashore with no possessions
The boat that takes you to the mainland becomes shipwrecked, and you wash up on the beach with no possessions and no way to get back.
Beginnner Quests on Nooby Island include:
Picking up Brahmin Poo
Feeding the Brahmin
Killing all the molerats in the garden
Crafting various items (depending on your skills)
Learning to Sneak
Learning to Steal
Learning to Lockpick