The most common and most likely answer to this crossword clue is the 9 letter word CARIBBEAN
I've seen this crossword clue in The Times
C
A
R
I
B
B
E
A
N
Buddy explains!
The straight part
We know that "who lives on an island?" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case who lives on an island? = caribbean.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.