'Nervy', tense inside, sitting on the fence? (7)
I believe the answer is:
neutral
'sitting on the fence?' is the definition.
(sitting on the fence can mean not taking sides)
'nervy tense inside' is the wordplay.
'nervy' becomes 'neural' (neural means relating to the nerves).
'tense' becomes 't' (abbreviation used in many dictionaries).
'inside' is an insertion indicator.
'neural' placed around 't' is 'NEUTRAL'.
(Other definitions for neutral that I've seen before include "Not partisan or supporting either side in dispute" , "Taking neither side" , "Impartial; plug wire" , "Impartial; colour" , "Lacking a preference" .)