City bird on the water (7)
I believe the answer is:
swansea
'city' is the definition.
(Swansea is an example)
'bird on the water' is the wordplay.
'bird' becomes 'swan' (swan is a kind of bird**).
'on' means one lot of letters go next to another.
'the water' becomes 'sea' (sea is a kind of water).
'swan'+'sea'='SWANSEA'
(Other definitions for swansea that I've seen before include "Second city of Wales" , "Home of the DVLA" , "Welsh port" , "Birthplace of Dylan Thomas" , "South Wales port" .)