Hopefully you can adapt this approach to your needs.
x = linspace(0, 10, 1000);
y = exp(-x);
plot(x, y)
grid on
ax = axes('Position', [0.3 0.6 0.1 0.2], 'Units', 'Normalized', 'Box', 'on', 'XGrid', 'on', 'YGrid', 'on');
idx = (x >= 1) & (x <= 2);
line(ax, x(idx), y(idx))
xlim([1 2])
% arrow ending coordinates were determined by trial and error since they are normalized
% to the entire figure rather than the axes
annotation('arrow', [0.3 0.25], [0.6 0.3])
