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Yes, it is entirely possible. Read more about IDN domains here.
Most e-mail programs support IDN domains and can use æøå characters in the domain name. But International Character (IMAA) in front of the domain name is not supported by any email programs yet, even though it is an upcoming standard, the work has been stagnant for many years. Example of IMAA email address can be: kåre@yourdomain.net.

For software that does not support IDN, the encrypted version of the domain name must be used. For example, the e-mail address post@læreplass.no will look like post@xn--lreplass-j0a.no.
There is also software that has issues with IDN. Android (all versions) gives error message when sending email.

We do not recommend using IDN domains for email. Then it's better to set up a forwarding of the domain name of the site and email addresses to one domain name without IDN.