cellSearchPathModifier.js

/**
 * cellSearchPathModifier
 * 	To be called on render by a cq:listeners listener handle for a parsys.
 * 		Takes in the constructor for that parsys and modifies the search path
 * 		for the components that can be inserted into that parsys. This function
 * 		will limit the search path to the outermost parsys so all inner parsys
 * 		inherit allowed components from the main parsys.
 * 
 */
var cellSearchPathModifier = function(componentConstructor) {
	
	var oldSearchPath = componentConstructor.cellSearchPath;
	
	var split = oldSearchPath.split('/');
	if(split.length >= 2) {
		var newSearchPath = split[0] + '/' + split[1];
		componentConstructor.cellSearchPath = newSearchPath;
	}

};

innerParsys -> .content.xml

<!-- Component that will wrap the actual paragraph system -->

<?xml version="1.0" encoding="UTF-8"?>
<jcr:root xmlns:sling="http://sling.apache.org/jcr/sling/1.0" xmlns:cq="http://www.day.com/jcr/cq/1.0" xmlns:jcr="http://www.jcp.org/jcr/1.0"
    jcr:primaryType="cq:Component"
    jcr:title="Inner Parsys"
    jcr:description="A paragraph system that inherits allowed components from top most parent paragraph system."
    componentGroup=".hidden" />

innerParsys -> innerParsys.jsp

<%@include file="/apps/your-project/components/global.jsp"%>

<%-- Store current design mode --%>

<% WCMMode wcmMode = WCMMode.fromRequest(slingRequest); %>
<c:set var="isDesignMode" value="<%=WCMMode.equals(WCMMode.DESIGN) %>" scope="request" />

<%-- Disable design mode for this component, then renable it, preventing the editBar from rendering in design mode --%>

<c:if test="${isDesignMode}"><% WCMMode.DISABLED.toRequest(slingRequest); %></c:if>
	<cq:include path="innerParsys" resourceType="your-project/components/content/innerParsys/parsys" />
<% wcmMode.toRequest(slingRequest); %

innerParsys -> parsys -> .content.xml

<!-- standard inheritance of the out of the box paragraph system -->

<?xml version="1.0" encoding="UTF-8"?>
<jcr:root xmlns:sling="http://sling.apache.org/jcr/sling/1.0" xmlns:cq="http://www.day.com/jcr/cq/1.0" xmlns:jcr="http://www.jcp.org/jcr/1.0"
    jcr:primaryType="cq:Component"
    jcr:title="Inner Parsys"
    jcr:description="A paragraph system that inherits allowed components from top most parent paragraph system."
    cq:isContainer="true"
    sling:resourceSuperType="foundation/components/parsys"
    componentGroup=".hidden"
    allowedChildren="*" />

innerParsys -> parsys -> _cq_editConfig.xml

<?xml version="1.0" encoding="UTF-8"?>
<jcr:root xmlns:cq="http://www.day.com/jcr/cq/1.0" xmlns:jcr="http://www.jcp.org/jcr/1.0"
    cq:actions="[text:Inner Parsys,_clear,insert]"
    cq:dialogMode="floating"
    cq:layout="rollover"
    jcr:primaryType="cq:EditConfig">

	<!-- call cellSearchPathModifier to modify the search path for allowed components -->
	<cq:listeners
	    	render="function(constructor) { cellSearchPathModifier(constructor); }"
        	jcr:primaryType="cq:EditListenersConfig"/>
        
</jcr:root>

innerParsys -> parsys -> new -> .content.xml

<!-- standard inheritance of the out of the box paragraph system -->

<?xml version="1.0" encoding="UTF-8"?>
<jcr:root xmlns:sling="http://sling.apache.org/jcr/sling/1.0" xmlns:cq="http://www.day.com/jcr/cq/1.0" xmlns:jcr="http://www.jcp.org/jcr/1.0"
    jcr:primaryType="cq:Component"
    jcr:title="New Inner Parsys"
    cq:isContainer="true"
    sling:resourceSuperType="foundation/components/parsys/new"
    componentGroup=".hidden"/>

innerParsys -> parsys -> new -> _cq_editConfig.xml

<?xml version="1.0" encoding="UTF-8"?>
<jcr:root xmlns:cq="http://www.day.com/jcr/cq/1.0" xmlns:jcr="http://www.jcp.org/jcr/1.0"
    cq:actions="[_clear,insert]"
    cq:dialogMode="floating"
    cq:layout="rollover"
    jcr:primaryType="cq:EditConfig">

	<!-- call cellSearchPathModifier to modify the search path for allowed components -->
	<cq:listeners
	    	render="function(constructor) { cellSearchPathModifier(constructor); }"
        	jcr:primaryType="cq:EditListenersConfig"/>
        
</jcr:root>

innerParsys -> parsys -> parsys.jsp

.... (change starts on line 77)
            case NORMAL:
                // include 'normal' paragraph
                IncludeOptions.getOptions(request, true).getCssClassNames().add("section");
                
                // draw anchor if needed
                /*	NOTE:
                		This block is skipped because of issues with nested paragraph systems and this
                		get call causing extreme slowdowns. This block isn't very useful anyways, especially
                		with HTML5.
                */
                if (false/*currentStyle.get("drawAnchors", false)*/) {
                    String path = par.getPath();
                    path = path.substring(path.indexOf(JcrConstants.JCR_CONTENT)
                            + JcrConstants.JCR_CONTENT.length() + 1);
                    String anchorID = path.replace("/", "_").replace(":", "_");
                    %><a name="<%= anchorID %>" style="visibility:hidden"></a><%
                }
                %><sling:include resource="<%= par %>"/><%
                break;
....

Nested Paragraph Systems in CQ5

Set up your file structure for the innerParsys component:

innerParsys
	-> parsys
		-> new
			- _cq_editConfig.xml
			- .content.xml
		- _cq_editConfig.xml
		- .content.xml
		- parsys.jsp
	- .content.xml
	- innerParsys.jsp