Loose dress: hem is dropped in church (7)
I believe the answer is:
chemise
'loose dress' is the definition.
(I've seen this before)
'hem is dropped in church' is the wordplay.
'dropped in' indicates putting letters inside.
'church' becomes 'ce' (abbreviation for Church of England).
'hem'+'is'='hemis'
'hemis' inserted into 'ce' is 'CHEMISE'.
(Other definitions for chemise that I've seen before include "Loose-fitting dress without a waist" , "Smock" , "Woman's sleeveless undergarment" , "Loose dress" , "Loose-fitting dress or undergarment" .)