In North Dakota, she had a gun wrapped in cotton wool (7)
I believe the answer is:
nannied
'wrapped in cotton wool' is the definition.
(to wrap in cotton wool is to nanny or mollycoddle)
'in north dakota she had a gun' is the wordplay.
'in' means one lot of letters goes inside another.
'north dakota' becomes 'ND' (abbreviation for the US state).
'she had a gun' becomes 'Annie' (as in the musical Annie Get Your Gun).
'nd' going around 'annie' is 'NANNIED'.
(Other definitions for nannied that I've seen before include "fussed over" , "Mollycoddled" , "wrapped in cotton wool" .)