Tunic or nightie? Not tight, that is a fabulous creation (7)
I believe the answer is:
unicorn
'a fabulous creation' is the definition.
Although both the answer and definition are singular nouns, I can't understand how one could define the other.
'tunic or nightie? not tight that' is the wordplay.
'UNICORN' is hidden in amongst the letters.
But, I am not sure how this is indicated.
'is' is the link.
(Other definitions for unicorn that I've seen before include "Fabulous one-horned animal" , "Imaginary animal" , "Mythical beast like horned horse" , "wonder horse" , "Imaginary, horned horse-like creature" .)