We need to create a master website with "sub websites" - We would like to setup user groups / permissions to only be able to manage their own content - Is this possible with a single Umbraco installation?

Hi, this is very much possible! On a permission level you can configure specific users or groups to only be able to view, create and edit specific nodes and children of said nodes 🙂

I would create a User Group for each sub website, set the 'content start node' to the top level node on the sub website, and then add all the users that will edit that website to the user group. There is more information here: https://docs.umbraco.com/umbraco-cms/fundamentals/data/users