Young lady lives in MS (4)
I believe the answer is:
miss
'young lady' is the definition.
(term of address for a young woman)
'lives in ms' is the wordplay.
'lives' becomes 'is' ('be' can be a synonym of 'live').
'in' indicates putting letters inside.
'is' inserted within 'ms' is 'MISS'.
(Other definitions for miss that I've seen before include "Fail to find" , "Fail to perceive" , "Young girl" , "Fail; long for" , "Musical set in Vietnam" .)