Cancel physical, taking exercise (6)
I believe the answer is:
repeal
'cancel' is the definition.
(I know this)
'physical taking exercise' is the wordplay.
'physical' becomes 'real' (I've seen this in another clue).
'taking' is an insertion indicator.
'exercise' becomes 'pe' (Physical Education).
'real' placed around 'pe' is 'REPEAL'.
(Other definitions for repeal that I've seen before include "Countermand" , "Abrogate" , "Annul by legislative action" , "reverse" , "reversal of act" .)