Lively spirit one observed in little sibling (4)
I believe the answer is:
brio
'lively spirit' is the definition.
(brio means vigour or spirit)
'one observed in little sibling' is the wordplay.
'one' becomes 'i' (Roman numeral).
'observed in' is an insertion indicator.
'little sibling' becomes 'bro' (short for 'brother').
'i' put into 'bro' is 'BRIO'.
(Other definitions for brio that I've seen before include "'Liveliness, vivacity (4)'" , "Drive" , "Enthusiasm" , "(Of music) spirit" , "Dash or verve, from Italian" .)