The most common and most likely answer to this crossword clue is the 7 letter word TIE-DYE
I've seen this crossword clue in The Guardian
T
I
E
-
D
Y
E
Buddy explains!

The straight part
We know that "decorate fabric" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case decorate fabric = tie-dye.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.
What does TIE-DYE mean?
TIE-DYE noun- A shirt that has been tie-dyed.
- To tie strings around (fabric or clothing) and then dye it, in such a manner that the tied parts do not get colored.