It was a capital little place (3)
I believe the answer is:
rio
'place' is the definition.
(I have seen 'place of carnival' mean 'rio' so perhaps 'place' could also mean 'rio')
I don't understand the rest of the clue.
Can you help me to learn more?
(Other definitions for rio that I've seen before include "- Ferdinand, footballer" , "A Mexican river, may be grande" , "place of carnival" , "The ... Grande borders Texas and Mexico" , "Manchester United player in South American city, in short?" .)