Hello!

I am applying for a PhD which requires two references. I have secured one but am unsure of who to use as the other. Can I use someone from my undergraduate degree, even though that's where my PhD would be based? Also does it matter than its been 3 years since I graduated?

Thank you

Yes you can use someone from your undergrad department regardless of where the PhD is taking place. That's what I did.
I don't see any need to worry about the 3 year gap.

Totally! Both of my PhD references were from the same department, and one of them was the actual potential supervisor!