Hospital room: treat poorly ambassador inside (7)
I believe the answer is:
Here is my best explanation:
'hospital room' is the definition.
(I've seen this before)
'treat poorly ambassador inside' is the subsidiary indication.
'poorly' indicates anagramming the letters.
'ambassador' becomes 'he'.
'inside' means one lot of letters goes inside another.
'treat' with letters rearranged gives 'tatre'.
'tatre' placed around 'he' is 'theatre'.
(Other definitions for theatre that I've seen before include "stage productions", "Criterion, possibly", "World of drama", "Such as The Globe", "Scene of military activity", "Hospital operating room - playhouse", "Site of plays or surgery", "Place for drama", "war zone" and "Drama venue".)