Reply To: Inset dotted border?

I don't think this will totally suit your needs, as it has no problems automatically expanding vertically, but horizontally is a bit more complicated (you have to remember to drag the right guide):

Make it a table.

Create a table, 3 columns, 3 rows. Set the row height of the top and bottom row to exactly the inset value you want (you might have to set the cell insets to 0 all around before ID allows you to make it very small). Do same for the leftmost and rightmost columns. Then give the inner cell the dotted outline you want, and add some cell insets all around, so your text won't be flush against the dotted border.