An ugly Greek woman in suspected madhouse? oh, no! (6)
I believe the answer is:
medusa
But I can't explain it at all! Could you help me understand?
(Other definitions for medusa that I've seen before include "Gorgon killed by Perseus - jellyfish" , "One of three sisters with snakes for hair" , "Amused by the mythical gorgon?" , "Amused like Greek Gorgon" , "Gorgon of Greek myth" .)