Small village tree climbed in Panama? (6)
I believe the answer is:
hamlet
'small village' is the definition.
(a hamlet is a small settlement)
'tree climbed in panama?' is the wordplay.
'tree' becomes 'elm' (elm is a kind of tree).
'climbed' says the letters should be written backwards (in a down clue, letters climb up).
'in' indicates putting letters inside.
'panama?' becomes 'hat' (panama is a kind of hat).
'elm' in reverse letter order is 'mle'.
'mle' inserted into 'hat' is 'HAMLET'.
(Other definitions for hamlet that I've seen before include "Tragic figure" , "Shakespeare's tragic Prince of Denmark" , "whose forefathers were rude, did Gray imply?" , "The Prince of Denmark's little village" , "Shakespearean tragedy" .)