Hole in old tree returning diamonds (7)
I believe the answer is:
orifice
'hole' is the definition.
(I've seen this before)
'old tree returning diamonds' is the wordplay.
'old' becomes 'o' (common abbreviation eg in OE for Old English).
'tree' becomes 'fir' (fir is a kind of tree).
'returning' is a reversal indicator.
'diamonds' becomes 'ice' (slang term for diamonds).
'fir' back-to-front is 'rif'.
'o'+'rif'+'ice'='ORIFICE'
'in' is the link.
(Other definitions for orifice that I've seen before include "Hole in the head, perhaps?" , "Mouth-like opening" , "Bodily opening, mouth of cavity" , "Hole, opening" , "For CIE, I look for an opening" .)