Gnome used to be upside down (3)
I believe the answer is:
saw
'gnome' is the definition.
(both can mean a proverb or saying)
'used to be upside down' is the wordplay.
'used to be' becomes 'was' (I've seen this before).
'upside down' is a reversal indicator.
'was' reversed gives 'SAW'.
(Other definitions for saw that I've seen before include "Viewed; adage" , "Spotted" , "Wood-cutting tool" , "Cutting tool or maxim" , "Hand tool; proverb" .)