Greek character seen in water colour (5)
I believe the answer is:
sepia
'colour' is the definition.
(I know that sepia is a type of pigment)
'greek character seen in water' is the wordplay.
'greek character' becomes 'pi' (letter from the Greek alphabet).
'seen in' is an insertion indicator.
'water' becomes 'sea' (the sea is water).
'pi' placed within 'sea' is 'SEPIA'.
(Other definitions for sepia that I've seen before include "brownish colour" , "Sort of ink" , "Brown tint" , "cuttle" , "source of ink" .)