Crazy time around capital of Ibiza island (7)
I believe the answer is:
madeira
'island' is the definition.
(I've seen this before)
'crazy time around capital of ibiza' is the wordplay.
'crazy' becomes 'mad' (synonyms).
'time' becomes 'era' (era is a kind of time).
'around' means one lot of letters goes inside another.
'capital of' suggests taking the first letters.
The initial letter of 'ibiza' is 'i'.
'era' going around 'i' is 'eira'.
'mad'+'eira'='MADEIRA'
(Other definitions for madeira that I've seen before include "Atlantic island, famed for its sweet wine" , "A fortified wine, a rich sponge" , "Cake - wine" , "Fortified Portuguese wine" , "Islands in the Stream?" .)