Sing with cape on in dance (8)
I believe the answer is:
hornpipe
'dance' is the definition.
(hornpipe is a kind of dance)
'sing with cape on' is the wordplay.
'sing with' becomes 'pipe' (I am not sure about the 'with' bit.).
'cape' becomes 'horn' (I've seen this before).
'on' says to put letters next to each other.
'pipe' put after 'horn' is 'HORNPIPE'.
'in' is the link.
(Other definitions for hornpipe that I've seen before include "Lively solo dance associated with sailors" , "Lively jig" , "Lively old sailors' dance" , "Obsolete instrument: naval dance" , "piece of music for an > old dance" .)