On vacation, amusement in that place in play area? (7)
I believe the answer is:
theatre
'play area?' is the definition.
(place where plays are performed)
'on vacation amusement in that place in' is the wordplay.
'on vacation' says to hollow out the word (remove centre letters) (after the inside letters have vacated the word).
'in that place' becomes 'there' (over there).
'in' means one lot of letters goes inside another.
'amusement' with its centre taken out is 'at'.
'at' put within 'there' is 'THEATRE'.
(Other definitions for theatre that I've seen before include "Building for the dramatic arts" , "Where audiences may be present" , "Space for drama" , "World of drama" , "Scene of action" .)