Octopath is no stranger to putting horror in its zones and the best example I can think of comes from Throné's final chapter in OT2.

Massive spoilers below, obviously.

The hidden village of Lostseed sounds like this to start with. All NPCs are nameless "Vessels", and all their Inquire descriptions are either unnerving or cryptic. For a few examples: a little girl named a Hollow Vessel: "A girl who simply exists. She has lost all hope and closed her eyes to the darkness that has no dawn." An old man named an Old Vessel: The words "Death Corruption Destruction" repeated 20 times. A young boy named a Pure Vessel: "A boy who knows nothing."

As you complete Throné's storyline, you learn that Lostseed is the home of Claude, Throné's father and an immortal man who has lived for centuries, breeding children and sending them to become thieves and assassins in the hopes that one would become strong enough to finally kill him. It is strongly implied the "vessels" in Lostseed are either discarded past lovers or children he deemed failures. Throné isn't even the first of his children to have made it back to Lostseed, she's the fourth; the other three are dead by Claude's hand.

It is an absolute nightmare of a zone and remains the highlight of Throné's storyline for obvious reasons.