Yes and no. That is the kind of measure that can help, but it's going to be very difficult to keep all relevant data within such a tightly controlled environment.
At some point you will probably need to work with the real data to do anything useful with it. There are situations where you really can operate on obfuscated/encrypted data, such as comparing password hashes, but these tend to be the exception rather than the rule.
And so, if you're compromised at a point with access to the raw data, or anywhere else from which access to such a point can be gained, you've still lost control of the data.
At some point you will probably need to work with the real data to do anything useful with it. There are situations where you really can operate on obfuscated/encrypted data, such as comparing password hashes, but these tend to be the exception rather than the rule.
And so, if you're compromised at a point with access to the raw data, or anywhere else from which access to such a point can be gained, you've still lost control of the data.