Characters at top of ship keep eyes peeled for island (4)
I believe the answer is:
skye
'island' is the definition.
(Scottish island)
'characters at top of ship keep eyes peeled' is the wordplay.
'characters' indicates anagramming the letters.
'at' says to put letters next to each other.
'top of' says to take the initial letters.
'peeled' says to take the centre (outer letters are peeled off).
The middle letters of 'eyes' are 'ye'.
The first letters of 'ship keep' is 'sk'.
'sk' after 'ye' is 'yesk'.
'yesk' anagrammed gives 'SKYE'.
'for' acts as a link.
(Other definitions for skye that I've seen before include "Largest Inner Hebridean island" , "Portree island" , "somewhere off Scotland's west coast" , "Scot. island, toll bridge" , "Scottish isle" .)