Windows 95, like Windows 3.x enhanced mode and Windows/386 before that, is actually a hypervisor that runs DOS in VMs; and one of those VMs, the "system VM", runs a DOS extender that handles the Win32 and GUI part.
Notably, the DOS environment under Windows is running in a hardware mode called "virtual 8086 mode" which allows it to be isolated from the other DOS environments and, even more importantly, from full BIOS access. These limitations kept the whole system safer and more stable than DOS in "real mode" but made some DOS programs unusable under Windows.