In the development of complex embedded interactive systems, a tension arises between, on the one hand, ever shorter and highly iterative design processes, and, on the other hand, the need for user testing with early prototypes to validate systems from a user-centred design perspective. This study focuses on the integration of Virtual Reality (VR) into prototyping embedded interactive systems, examining its potential to bridge the gap between rapid prototyping and user-centered design validation. Adopting a comparative research approach, we analyze a case study: the development of a cultural smart city experience. It juxtaposes in situ, low-fidelity prototype testing with VR-based testing, evaluating their realism, interactivity, functionality, presence and task difficulty. This mixed-method research design incorporates both qualitative and quantitative methodologies, engaging 27 design students in a comparative study, conducting participatory research and 8 expert interviews. These findings reveal divergent roles in field testing and VR in the new product development process, highlighting VR’s strengths in visualizing procedures and facilitating discussion. This study identifies the limitations of VR in mimicking realistic interactions and incorporating social context yet underscores its superiority over paper prototypes in its realism and interactivity. Where field testing can hold broader contextual insights, the VR prototype gives more concrete and applied insights. The main advantage of VR testing is its visualisation of procedures and its final materialisation according to the participants interviewed. According to the experts interviewed, VR can be used as a useful tool within the development process especially for visualisation and testing user flows of complex interfaces.