Preposterous yarn inspired by red fox (7)
I believe the answer is:
reynard
'fox' is the definition.
(Reynard is an example)
'preposterous yarn inspired by red' is the wordplay.
'preposterous' indicates an anagram.
'inspired by' means one lot of letters goes inside another (some letters breathed in or 'inspired' by others).
'yarn' is an anagram of 'ynar'.
'ynar' placed into 'red' is 'REYNARD'.
(Other definitions for reynard that I've seen before include "Traditional name for a fox" , "Fox as trickster figure" , "Crafty type" , "Archetypal name for a fox" , "Name for the fox in fable and folklore" .)