Indonesian island embracing English language (7)
I believe the answer is:
bengali
'language' is the definition.
(I've seen this before)
'indonesian island embracing english' is the wordplay.
'indonesian island' becomes 'bali' (island of Indonesia).
'embracing' is an insertion indicator.
'english' becomes 'eng' (abbreviation).
'bali' placed around 'eng' is 'BENGALI'.
(Other definitions for bengali that I've seen before include "may be Indian" , "Asian character" , "Asian language" , "tongue" , "From Dhaka or Kolkata, perhaps" .)