Fuel located in Pegasus (3)
I believe the answer is:
gas
'fuel' is the definition.
(gas is a fuel)
'located in pegasus' is the wordplay.
'located in' indicates a hidden word.
'GAS' can be found hidden inside 'pegasus'.
(Other definitions for gas that I've seen before include "It may be natural" , "Oxygen maybe" , "Domestic fuel" , "Americans' petrol" , "Nitrogen, say" .)