Character who discovered Treasure Island after a large cut, we hear (3,4)
I believe the answer is:
ali baba
'character who discovered treasure' is the definition.
(as in Ali Baba and the Forty Thieves)
'island after a large cut we hear' is the wordplay.
'island' becomes 'i' (geographical abbreviation).
'after' means one lot of letters go next to another.
'a large' becomes 'L' (eg in clothes sizes).
'cut' indicates putting letters inside (some letters cut their way into a word).
'we hear' becomes 'ababa' (I can't explain this - if you can you should give a lot more credence to this answer).
'i' after 'l' is 'li'.
'li' put into 'ababa' is 'ALI BABA'.
(Other definitions for ali baba that I've seen before include "He was involved with forty thieves (1001 Nights)" , "Arabian Nights character" , "Folk hero associated with the Forty Thieves" , "Hero of Arabic story" , "Pantomime hero who defeated forty thieves" .)