1.) You have made [it] up yourself.
2.) You have made up [the illusory world in which you move] yourself.
3.) You yourself have made up [the illusory world in which you move].
Your versions #1 and #3 are demonstrating the emphatic use of a reflexive pronoun ("yourself") -- which is part of standard English.
But in version #2, the reflexive pronoun is not being used in that way. Instead, that pronoun is now a direct object within the relative clause "in which you move yourself". (This is because the particle "up" does not separate the matrix clause object from the reflexive pronoun "yourself" as it does in version #1.) And so, version #2 has a different meaning from the others.
QUESTIONS: Is it considered "good" English? Can it be used formally? If not, why not?
I'm assuming you are asking about the emphatic use of the reflexive pronoun: this is probably more of a style issue, and I'd guess that some of the more formal styles and registers might not care too much for it.
QUESTION: And what are the alternatives?
As to your question for alternatives, you could try postposing the heavy direct object, or use dislocation (left or right), though if you try one of these or other information packaging constructions you might also want to consider moving that reflexive pronoun to another slot. (Also, be aware that dislocation is often considered more appropriate to an informal style.)
For instance, postposing,
- 2.b) You have made up yourself [the illusory world in which you move].
And left dislocation,
- 2.c) [The illusory world in which you move], you have made it up yourself.
And right dislocation,
- 2.d) You have made it up yourself, [the illusory world in which you move].
though, note that for right dislocation, that there are constraints, such as: the dislocated phrase must represent discourse-old information (CGEL, page 1412). This means that the info of "the illusory world in which you move" must already have basically been mentioned earlier in the prose.
Superficially similar to right dislocation is the construction extraposition which happens to allow the extraposed constituent to be discourse-new information. But noun phrases in general tend to resist extraposition, e.g.
- 2.e) You have made it up yourself [the illusory world in which you move].
but this (#2.e) is probably ungrammatical. (Notice that #2.e has no comma.)
You could also try complement preposing,
- 2.f) [The illusory world in which you move] you have made up yourself.
But for preposing, it too has constraints, such as: the complement must be discourse-old, acting as a link to other entities evoked in the prior discourse (CGEL, page 1372).
You can also move the emphatic reflexive pronoun around. For instance:
- 1.) You have made it up yourself.
- 1.b) You yourself have made it up.
- 1.c) You have yourself made it up.
You can also try other information packaging constructions. For instance, the it-cleft:
Hopefully this is what you were asking for.