questions - "Do you know what IS IT?" vs "Do you know what IT IS?"

What is the right way to embed one question inside another?

For example:

1. "Do you know what is it?"


2. "Do you know what it is?"

Are they both grammatical? If one of them isn't, then why is it ungrammatical?

I can say the question "What is it?", so I assume I can also say the question "Do you know what is it?" Can't I?

Answer

The rule is: Subordinate questions have no inversion of subject and verb as in independent questions.

So the following examples are correct:

What is it? (Subject placed after the verb)

Do you know what it is? (In the subordinate question normal word order subject verb)