Lives on spacecraft, one surrounded by water (8)
I believe the answer is:
islander
'one surrounded by water' is the definition.
(land surrounded by water)
'lives on spacecraft' is the wordplay.
'lives' becomes 'is' ('be' can be a synonym of 'live').
'on' is a charade indicator (letters next to each other) (in a down clue, letters appear on others).
'spacecraft' becomes 'lander' (eg a moon lander).
'is'+'lander'='ISLANDER'
(Other definitions for islander that I've seen before include "One from e.g. Skye" , "Samoan, maybe" , "native of Borneo, for example" , "Native of Bali, perhaps" , "Manxman, maybe," .)