Mad Hatter with Alice ultimately creating drama (7)
I believe the answer is:
theatre
'drama' is the definition.
(thesaurus)
'mad hatter with alice ultimately' is the wordplay.
'mad' indicates anagramming the letters.
'with' is an insertion indicator.
'ultimately' indicates one should take the final letters.
The final letter of 'alice' is 'e'.
'hatter' anagrammed gives 'thatre'.
'thatre' placed around 'e' is 'THEATRE'.
'creating' acts as a link.
(Other definitions for theatre that I've seen before include "where they're in action?" , "(Military) field of action" , "US cinema" , "Eg, Oxford's Sheldonian" , "where you may get knifed" .)