Is the use of "-based" ending acceptable for two words expression?

Solution 1:

If you're a stickler for typographical distinctions (or you have a style guide that is) then you might want to follow the policy that an en dash (–) is used rather than a hyphen, when hyphenating a compound of which one or more components are already compounds. Hence "body tracking–based" or "body-tracking–based". In the latter this policy makes a bigger difference than in the former, with a visually larger line between tracking and based than between body and tracking.

That said, many people happily ignore this use of the en dash, and probably don't suffer much from doing so. Some that do use it, don't if there isn't a hyphen in the original compound, and would happily use your original "body tracking-based".

In terms of "acceptability" then, it's fine. It may be that being technically acceptable isn't enough, and you find that it reads awkwardly for you. This is a more important factor to whether you rewrite or not than any opinion from anyone here on acceptability of the form; correct doesn't necessarily mean good.

Solution 2:

As @BillFranke mentioned in his comment - from a readability standpoint and to answer your question, this reads more smoothly:

"interaction based on body tracking"

@JonHanna's answer correctly addresses the style issue with hyphens vs. en-dashes but strictly applying my own criteria whether something reads smoothly or stops my eye because of complex or awkward style, your second option gets my vote.