She set it in the heart of Granada (5)
I believe the answer is:
anita
'she' is the definition.
'it in the heart of granada' is the wordplay.
'in the' is an insertion indicator.
'heart of' means to look at the middle letters.
The middle letters of 'granada' are 'ana'.
'it' going within 'ana' is 'ANITA'.
'set' acts as a link.
(Other definitions for anita that I've seen before include "girl produced" , "-- Loos, US writer" , "Woman" , "- Loos (Gentlemen Prefer Blondes)" , "eg Dobson or Roddick" .)