Palace in cathedral city and diocese (6)
I believe the answer is:
Here is my best explanation:
'palace' is the definition.
(I've seen this before)
'cathedral city and diocese' is the wordplay.
'cathedral city' becomes 'ely' (I've seen this before).
'and' says to put letters next to each other.
'diocese' becomes 'see' (I've seen this before).
'in' acts as a link.