In java can we create a inner class inside a method??

Answer to this query is yes .

Example code :

 class Outer
    {
        String outerVar="outer Variable";
        public void checkInner()
        {
            final String localVar="Local Variable";

            class Inner
            {
                public void check()
                {
                    Outer o2=new Outer();
                    System.out.println("outer var ::"+outerVar);
                    System.out.println("local var ::"+localVar);
                }
            }

            Inner i1=new Inner();
            i1.check();
        }
    }
 public class NestedClass {
        public static void main(String args[])
        {

            Outer o1=new Outer();
            o1.checkInner();

        }

    }

In the above code Outer class is the enclosing class and Inner class is the non static nested class which is defined inside a checkInner() method of the Outer class.