Sage in Derby, say, entertained by the old woman (7)
I believe the answer is:
mahatma
'sage' is the definition.
(term for a wise Hindu leader)
'derby say entertained by the old woman' is the wordplay.
'derby say' becomes 'hat' (derby is a type of hat).
'entertained by' indicates putting letters inside (inserted letters are hosted or entertained).
'the old woman' becomes 'mama' (both can mean someone's mother).
'hat' placed into 'mama' is 'MAHATMA'.
'in' is the link.
(Other definitions for mahatma that I've seen before include "Wise and holy leader in 12" , "Holy person or sage in South Asia" , "Gandhi's title" , "Gandhi, for example" , "In India, a title of respect as for Gandhi" .)