Azure announced nested virtualization support coming to Azure with Dv3 or Ev3 series at //build session last month.
you can now enable nested virtualization using the Dv3 and Ev3 VM sizes.
Now not only you can create a Hyper-V container with Docker, but also by running nested virtualization, you can create a VM inside a VM. Such nested environment provides great flexibility in supporting your needs in various areas such as development, testing, customer training, demo, etc. For example, suppose you have a testing team using Hyper-V hosts on-prem today. They can now easily move their workloads to Azure by using nested VMs as virtualized test machines. The nested VM hosts will be used to replace physical Hyper-V hosts, individual testing engineer will have full control over the Hyper-V functionality on their own assigned VM Host in Azure.
For software and hardware prerequisites, configuration steps and limitations for nested virtualization please see the document here.