Thinking about doing some improv with your students? Jump on in! Although I certainly don't recommend following any "rules" about the right way to do this, I thought I'd share some things that have worked for me during the past few years...
Have a place where the kids can "circle up". Organize your desks in a circle, or rehearse moving your desks quickly and in an organized fashion so you have a large space to play in a circle.
Have a place for in-class performances. Delineate a "stage space", and specify where audience players will sit. Don't let kids sit where the wings of the "stage" would be; honor the space as a performance area.
Show off the Principles of Improv. I have full-sheet posters up right above my board.